Macau Concessionaires Could Be EBITDA Positive in Q1 – Morgan Stanley

Posted on: January 16, 2023, 10:17h. 

Last updated on: January 16, 2023, 12:17h.

Following a lengthy run of losses, Macau concessionaires could turn positive on the basis of earnings before interest, taxes, depreciation, and amortization (EBITDA) in the current quarter, according to a team of Morgan Stanley analysts.

Macau Concessionaires
Casinos on the Cotai Strip in Macau. Concessionaires there could be EBITDA positive in the first quarter. (Image: Getty Images)

On the heels of China recently relaxing its zero-COVID policy — including the removal of most travel protocols to the casino hub –Macau’s daily gross gaming revenue (GGR) is trending higher to start 2023. It’s possible that trend will be bolstered with the arrival of the Chinese New Year (CNY).

1Q23 is the first quarter after three years for normalized Chinese and HK visitation into Macau. We are already seeing strong hotel bookings for the upcoming CNY holidays and strong pickup in visitation and GGR,” noted Morgan Stanley analysts  Praveen Choudhary, Dan Xu, Jeffrey Mak and Gareth Leung.

The analysts added that during CNY festivities, Macau visitation could approach 80% of pre-pandemic levels, potentially positioning concessionaires to turn cash flow positive, which is much needed following several years of losses and mounting debt.

Macau Concessionaires Q4 Outlook Encouraging

While financial markets and their participants are usually forward-looking, fourth-quarter earnings season is fast approaching. The news from Macau concessionaires could prove encouraging, as Morgan Stanley is forecasting narrower EBITDA losses.

The bank estimates that all six operators will post losses for the October through December period. But those figures will show improvement relative to prior pandemic-saddled quarters. Morgan Stanley forecasts the largest fourth-quarter loss from Sands China at $88 million. But that company is the largest Macau operator, controlling five integrated resorts in the Chinese territory.

Grand Lisboa operator SJM Holdings could notch a loss of $75 million, while Wynn Macau and MGM China could post EBITDA losses of $57 million and $56 million, respectively, according to the bank. Galaxy Entertainment is forecast to report a fourth-quarter loss of $28 million, while Melco Resorts could be the best of the lot with an estimated loss of $13 million.

Combined, that works out to $320 million, which is wider than consensus estimates, but a sharp improvement from the $574 million the Macau concessionaires bled in the third quarter.

Other Positive Signs for Macau Concessionaires

As noted above, Macau operators started 2023 on a strong note — a fact affirmed by recent strength in average table occupancy and bets.

Morgan Stanley’s channel checks indicate at least 60% of tables in Macau casinos had players at them through the first 10 days of the month. The average bet per hand was a robust $62.20. Those trends could pave the way for a more sizable recovery as 2023 unfolds.

“We believe this will help the second-half 2023 and 2024 win, table, and day productivity numbers,” concluded the bank. “Macau can support much high(er) visitor numbers in [the] future. This could help Macau generate higher mass revenue, if spending per capita can be maintained.”