Banking group Morgan Stanley says it has lowered by 5 percent, on average, its estimates on 2023 earnings before interest, taxation, depreciation and amortisation (EBITDA) for Macau’s six casino operators, against the backdrop of market recovery.
The reduction in the forecast for Macau’s gaming industry EBITDA was “to reflect our expectation of a slightly slower-than-expected recovery,” wrote analysts Praveen Choudhary, Gareth Leung, Stephen Grambling, and Nicholas DeValeria.
“Our 2023 estimate for industry net profit is 16-percent lower due to operating leverage,” as costs ramp up for Macau casino operators as business volumes continue to increase, stated the institution in a Monday note.
Morgan Stanley now expects Macau’s gaming industry EBITDA to reach nearly US$6.55 billion this year, versus a previous estimate of US$6.90 billion.
The institution said net revenue for the sector should be about US$24.05 billion, with industry-wide net profit at US$2.20 billion, the latter down 16 percent from a previous estimate of US$2.61 billion.
The banking group lowered its 2023 EBITDA estimates for Sands China Ltd by 4 percent, to US$2.20 billion, as it reduced its mass-market share assumptions for the casino firm, “as capacity is added by peers and there is a potential impact from slower grind mass recovery”.
Morgan Stanley indicated its revised 2023 EBITDA forecast for Galaxy Entertainment Group Ltd was HKD11.18 billion (US$1.43 billion), down 12 percent over its previous estimate. That was due to a “lower second-quarter 2023 actual EBITDA” and “lower EBITDA” from the group’s flagship property Galaxy Macau.
The institution thinks Wynn Macau Ltd’s 2023 EBITDA will be nearly HKD6.33 billion, or 7 percent lower than its previous estimate, on “lower 2023 market share assumptions”.
SJM Holdings Ltd’s 2023 revised EBITDA is forecast by Morgan Stanley at HKD1.89 billion, down 24 percent on its previous estimate. That was due to “slower ramp” of the group’s newest property, the Grand Lisboa Palace casino resort in Cotai.
The banking group however raised 2023 EBITDA estimates for two of the city’s casino operators.
The institution now estimates MGM China Holdings Ltd’s 2023 EBITDA will be approximately HKD6.01 billion, up 1 percent from its previous forecast.
It also raised its estimate for Melco Resorts & Entertainment Ltd’s 2023 EBITDA by 8 percent, to US$1.07 billion, “on lower opex [operational expenditure] estimates”.
In addition, Morgan Stanley reduced its 2024 EBITDA and net profit estimates for Macau’s gaming industry by 2 percent respectively, “due to a lower slot revenue estimate …, while overall gross gaming revenue is unchanged as VIP estimates are higher.”
“Slot revenue has higher margin than VIP revenue,” it stated.
The institution now estimates Macau gaming industry 2024 EBITDA of US$9.48 billion, and aggregate net profit of nearly US$5.21 billion.
In Monday’s note, the investment bank suggested that mass-market revenue in Macau was already “back to pre-Covid levels”.
“Outperformance from here, we think, will depend on mass revenue reaching 120 percent of 2019; mass market gaining share, partly driven by supply increase; opex discipline; and financial leverage,” said the analysts.
The institution said the need for more mass revenue compared to 2019 levels was due to several reasons, including the fact that taxes “have increased by 1 percent (from 39 percent to 40 percent) for gaming and by 0.5 percent for gaming space rental”.
It added: “VIP revenue is down by more than 75 percent versus 2019,” while revenue from slot machines – the highest-margin gaming product – “in third-quarter 2023 was running at only 80 percent of the 2019 level”.
“Mass reinvestment rate is much higher than the 2019 level due to higher hotel rates and complimentary entertainment offerings; and opex is still lower but is creeping up towards the 2019 level,” noted the Morgan Stanley team.
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