Banking group Morgan Stanley has trimmed by 1.9 percent its forecast for 2023 Macau casino industry earnings before interest, taxation, depreciation and amortisation (EBITDA). It now expects them to be just over US$6.42 billion, versus its previous estimate of nearly US$6.55 billion.
The institution has also reduced by 6.3 percent its 2024 market EBITDA estimate, which it now thinks will be circa US$8.88 billion, rather than the US$9.48 billion it had anticipated.
This was “mainly because we now assume higher fixed operating expenses post-Covid, at 5 to 6 percent above 2019 level,” said a Tuesday report previewing third-quarter earnings season for Macau’s six operators, compiled by analysts Praveen Choudhary, Gareth Leung and Stephen Grambling.
A number of Macau operators previously said they expected to make permanent some cost cutting they had achieved during the Covid-19 pandemic. But some operators, such as Galaxy Entertainment Group Ltd and Melco Resorts & Entertainment Ltd, have opened more hotel and events facilities since Macau’s exit from pandemic-related travel restrictions.
JP Morgan Securities (Asia Pacific) Ltd stated in a Tuesday note previewing the third quarter industry numbers, that in terms of operators’ EBITDA “we do not expect a big miss, but we see pockets of less-then-stellar performances versus initial expectations” for some Macau names.
JP Morgan observed that the Macau sector’s market capitalisation stood at only US$66 billion versus pre-Covid levels of US$100 billion to US$140 billion or even the “historical peak of circa US$200 billion 10 years ago”.
But against the backdrop of “soon-to-be-breaking-record EBITDA”, market valuation seemed “a bit unfair, especially considering the sector’s biggest regulatory risks of the past – licence overhang and VIP/junket clampdown – have already been removed”.
In its third-quarter preview, Morgan Stanley said it expected industry corporate EBITDA to grow by about “12 percent” quarter-on-quarter, and reach about 79 percent of 2019 levels.
Meanwhile, for the coming two years, Morgan Stanley thinks Sand China Ltd’s operating expenses could be between 106 percent and 112 percent of 2019’s. The company’s EBITDA should reach US$2.17 billion and US$2.83 billion in 2023 and 2024, respectively.
It forecasts such costs next year and in 2025 for Galaxy Entertainment will be 113 percent to 121 percent of 2019’s. Galaxy Entertainment’s EBITDA is estimated at HKD10.44 billion (US$1.34 billion) this year, and HKD15.83 billion next year.
It expects Wynn Macau Ltd’s costs to be 100 percent to 105 percent of 2019’s. The company’s EBITDA might reach HKD6.40 billion this year, and HKD8.32 billion in 2024.
Melco Resorts’ costs are put at 105 percent to 107 percent of 2019. The firm’s EBITDA is estimated at US$1.05 billion in 2023, and US$1.48 billion next year.
Morgan Stanley assesses MGM China Holdings Ltd’s operating expenses in the coming two years will be 114 percent to 118 percent of 2019 levels. It forecasts the firm’s EBITDA to reach HKD6.28 billion this year, and HKD7.09 billion in 2024.
The institution gives no range for SJM Holdings Ltd’s operating expenses in 2024 and 2025.
But it states: “We reduce SJM’s 2023 estimated EBITDA by 8 percent due to high operating-expense assumptions.” It forecasts the company to achieve EBITDA of HKD1.74 billion this year, and HKD4.46 billion next year.
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