Macau Revenue Won’t Stop Falling Until October, but 2021 Should be Better, Says Morgan Stanley

Macau’s faltering gross gaming revenue (GGR) will maintain that downward trajectory at least until October. But a significant 2021 rebound could be in store for the world’s largest gaming center, according to Morgan Stanley analysts.

With visitation still at trickle levels amid the coronavirus pandemic, analysts aren’t being shy about slashing monthly and annual Macau GGR forecasts. In a new report, Morgan Stanley said it expects gaming turnover on the peninsula will plunge 35 percent this year, more than double the bank’s previous estimate of a 16 percent contraction.

This drives down our 2020 and 2021 earnings before interest, taxes, depreciation and amortization (EBITDA) estimates by -37 percent and -18 percent, respectively, due to fixed costs and negative operating leverage,” said the bank.

Earlier this month, the government projected a 50 percent drop in 2020 GGR because of the COVID-19 outbreak. GGR there fell by a record 87.9 percent in February amid a 15-day government-enforced casino closure, and analysts are expecting the March number to decline 75 percent to 80 percent on a year-over-year basis.

Slow Road Back

Nearly all of Macau’s roughly 40 casinos are currently operational – a few are being used as quarantine centers for screening and treating coronavirus patients – but the Special Administrative Region (SAR) is still enduring strict restrictions.

Those protocols were implemented as a means of stemming the spread of the coronavirus. It’s a gambit that initially proved effective, as Macau went almost 40 days without a new reported case of the respiratory illness. However, earlier this month, three new cases emerged in a matter of days, prompting authorities there to ban all travelers from Europe from entering the SAR.

Lack of clarity on when Beijing will lift the IVS halt is prompting analysts to speculate that the first nine months of this year will essentially be a wash for Macau concessionaires, and that no noticeable uptick in GGR will materialize until the fourth quarter.

Being Patient

For wary investors and beleaguered operators, the key over the near-term is being patient, a scenario that could be easier if high-end players return to Macau sooner than expected.

“While we expect recovery to be slow, we anticipate VIP to turn around faster and Peninsula to benefit from land-based visitation,” said Morgan Stanley.

Looking further, 2021 is expected to be significantly better for Macau than 2020 will prove to be. Morgan Stanley expects the peninsula’s GGR will surge 40 percent next year, up from a prior forecast calling for a 20 percent rebound.