Coronavirus Contagion Crimping Cash Flow For Macau Casino Operators

Posted on: January 30, 2020, 10:19h. 

Last updated on: January 30, 2020, 12:32h.

The coronavirus continues wreaking havoc, with the count of documented cases on a global basis up to 7,700 with 170 deaths, according to the World Health Organization (WHO). Those are data points that are presenting significant headwinds to Macau gaming operators.

Macau casino operators will have to do deal with pinched cash flow because of the coronavirus. (Image: CNN)

The world’s largest gaming center has seven confirmed cases of the respiratory illness, a number that has held steady over the past 48 hours. However, health officials there say 15 patients are awaiting results and another 16 are under observation because they had contact with those infected by the “Wuhan virus.”

With Beijing having temporarily scrapped visas for Macau visits and transportation from other major arteries – such as Hong Kong and Taiwan – to the casino hub cut-off, gaming companies’ cash flow is expected to languish. On the company’s earnings conference call Wednesday, Las Vegas Sands (NYSE:LVS) President and COO Rob Goldstein said visits to the Special Administrative Region (SAR) are off as much as 80 percent.

The 2019 Novel Coronavirus’ (2019-nCov) cash flow effect on Macau’s gaming operators will be significant, as the virus spreads and regional governments’ precautionary measures continue,” said Fitch Ratings in note obtained by

The research firm added that the four US-listed Macau operators – LVS, Melco Resorts & Entertainment (NASDAQ:MLCO), MGM Resorts International (NYSE:MGM), and Wynn Resorts (NASDAQ:WYNN) – should be able to withstand pressure inflicted by the viral outbreak.

Holding Steady

LVS is the first of the major operators to report fourth-quarter and full-year 2019 results, and its stock is trading modestly at this writing while the broader market swoons. Macau remains the company’s marquee market.

In the last three months of 2019, Sands generated $1.39 billion in adjusted property earnings before interest, taxes, depreciation and amortization (EBITDA) on $3.51 billion in revenue, with $811 million of that EBITDA and $2.24 billion of turnover being derived on the peninsula.

Macau operators have previously dealt with health scares, and while those issues present near-term headwinds, historical data indicate visits bounce back in a few months.

“During the H1N1 (swine flu) pandemic in Asia, Macau’s gaming revenue and visitation declined 17% and 16%, respectively, in June 2009, the first month Macau reported its first case of swine flu,” said Fitch. “Revenue stabilized sequentially thereafter and started to recover in September 2009.”

The ratings agency acknowledged that the difference between the swine flu outbreak and this year’s coronavirus epidemic is that the former occurred as the world was still grappling with the effects of the global financial crisis.

Wide Ranges

Fitch hypothesized a scenario in which Macau operators could see first- and second-quarter revenue tumble 50 percent and 25 percent, respectively, prompting potentially large cash flow declines for LVS, Melco, MGM, and Wynn.

“The combined hit to the four operators’ cash flow would be $2.0 billion, relative to about $11.0 billion of EBITDA and $1.3 billion of free cash flow (FCF) Fitch previously forecast under a status quo 2020 scenario,” according to the research firm. “This $2.0 billion cash flow effect scenario considers the operators’ expense structure and further assumes 50% of the revenue decline flows down to EBITDA.”

On Wednesday, LVS said it ended 2019 with $4.23 billion in cash on hand, tops in the gaming industry.