The 2022 forecast for Macau casino gross gaming revenue (GGR) has been reduced by about 30 percent by the Morgan Stanley banking group, due to what it called a “long dry highway with no exit in sight” in terms of market recovery. It noted also, that shareholder equity value had fallen by about half, over recent quarters.
The institution now expects this year’s market GGR to be the equivalent of US$11 billion, i.e., not only 30 percent down on its prior estimate, but also the equivalent of about 30 percent of 2019’s level. The mass and slot revenues within the latest 2022 forecast have been revised down by 26 percent.
Morgan Stanley has also lowered its GGR estimate for 2023, in that case by 11 percent, or 62 percent of 2019’s casino GGR. Its mass and slot revenue estimates within that, are down 10 percent on the institution’s previous forecast.
“Without a meaningful uptick” in Macau visitor volume, including authorities in mainland China and Hong Kong “easing travel policies” relative to Covid-19 restrictions – and improvement in mass revenue – Macau casino companies “will remain free cash flow negative, driving net debt higher and book value lower,” wrote Morgan Stanley analysts Praveen Choudhary, Gareth Leung, and Thomas Allen.
They added: “Industry is reporting approximately US$800 million in losses and approximately US$250 million in cash flow leakage per quarter. Net debt has moved from US$5 billion at the end of 2019 to US$20 billion at the end of 2021, and shareholders’ equity has moved from US$23 billion to US$12 billion.”
The analysts added it was “no wonder” that “many” of the industry’s bonds were trading at a coupon of “10 percent-plus”.
The Morgan Stanley observed of the Macau market in general: “We recovered from the Covid shock in the first quarter 2020, with quarantine-free travel between China and Macau.” But “we are stuck at approximately 30 percent” of pre-pandemic visitor volume “for the last six quarters,” the analysts added.
The institution said additionally that its estimate for 2022 corporate earnings before interest, taxation, depreciation and amortisation (EBITDA) in the Macau casino industry was down 63 percent from its previous forecast, to US$1.40 billion.
For the first quarter this year, Morgan Stanley anticipated the Macau industry would report modest growth of 8 percent quarter-on-quarter in EBITDA, “despite mass revenue being flattish quarter-on-quarter”.
The final quarter of 2021 had been “negatively affected by approximately US$40 million by hold rate and one-off charges related to junket closure,” said the Morgan Stanley analysts.
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