GGRAsia – Scope for quick Macau rebound, timing unclear: analyst

Scope for quick Macau rebound, timing unclear: analyst

Jul 27, 2022 Newsdesk Latest News, Macau, Top of the deck

Macau’s gaming industry faces a bleak outlook in the near term, but the market might be able to “rebound quickly” once inbound travel restrictions are relaxed, says analyst Joseph Greff from JP Morgan Securities LLC.

“In the near term [the business outlook] is tough, but Macau – longer term” had access to “a large quantum of people with proclivity to game,” he stated. “So, longer term,” the outlook for Macau “should be bright,” Mr Greff added in an interview with business news outlet CNBC.

Macau casino GGR fell to its lowest monthly tally this year in June – and the lowest since September 2020 – amid the city’s biggest-ever Covid-19 outbreak. Aggregate GGR fell by 46.4 percent year-on-year in the first six months of 2022.

Most Macau casinos reopened on Saturday (July 23) with limited operations as part of countermeasures against Covid-19, and with business volumes seemingly depressed as travel restrictions constrain the number of visitors from mainland China. By Friday, the city had had a nearly two-week shutdown of non-essential businesses, including casinos.

In his comments to CNBC, Mr Greff said the performance of Macau’s casino sector, in terms of gross gaming revenue (GGR), “has been nothing short of a … disaster,” adding that “travel mobility has been weak, really since the start of the year.”

The JP Morgan analyst said Macau casino operators were not only facing a “revenue problem,” but also “an expense problem,” because of all of the restrictions to stem the further spread of Covid-19.

“You’re basically forced to pay these employees. So, in the meantime, they [operators] are suffering significant EBITDA [earnings before interest, taxation, depreciation and amortisation] losses,” he added.

Another financial institution, Morgan Stanley Asia Ltd, said in a recent note that it expects the Macau casino sector in full-year 2022 to report a US$800-million loss in terms of EBITDA, compared to a previous estimate at the start of the year of US$3.8 billion in positive EBITDA. “Finding an EBITDA anchor is key but difficult, since travel reopening time-line remains uncertain,” said Morgan Stanley.

JP Morgan’s Mr Greff said he expected investors to be focused on what might happen in Macau next year. “When the number of Covid cases improve, when vaccination rates improve, that should … [lead] to travel enhancement policies, to allow more people from mainland China and Hong Kong to travel to Macau,” he noted.

Mr Greff also said the liquidity profiles for Macau operators with United States-based parents showed that these firms “have a year and a half of getting through a zero-revenue environment.”

“But there are no guarantees that Macau will recover in a certain time frame or to a certain revenue threshold,” he stated, adding that it was “fortunate” that the U.S.-based parents could “provide lifelines” – via loans – to the Macau units.

Macau casino operator Sands China Ltd said earlier this month that it would have access to a US$1-billion loan from its parent, U.S.-based Las Vegas Sands Corp. Last month, Wynn Macau Ltd said its parent firm Wynn Resorts Ltd would provide a loan facility of US$500 million.

Despite the near-term challenges, Mr Greff said the Macau market could rebound quickly if travel restrictions were eased. “If you look at any gaming market coming out of the pandemic, as we’re seeing it now in Singapore, spending and visitation have quickly rebounded when people can travel and have easy access to a gaming market from another geography.”