Macau Q4 Earnings Slated to Rise, Led by Melco, Wynn, Others

Posted on: January 15, 2024, 10:33h. 

Last updated on: January 17, 2024, 04:18h.

Fourth quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) for the six Macau concessionaires are expected to rise 6% in aggregate, led by SJM Holdings and Wynn Macau.

Macau COVID-19 China casino gaming revenue
Pedestrians walk near Wynn Palace on Macau’s Cotai Strip. The operator could post one of the biggest Q4 EBITDA gains among the six Macau concessionaires. (Image: Bloomberg)

That’s according to Citi analysts George Choi and Ryan Cheung. In a new report to clients, the duo noted that Sands China and Galaxy Entertainment, the two largest Macau operators, likely shed market share in the final three months of 2023. But rivals benefited from that attrition.

Even though we believe most of the market share changes in 4Q were driven by luck, the short-term market share gains will likely translate into more resilient EBITDA margins for MGM China, Melco, Wynn Macau and SJM, which should in turn translate into near term share price outperformance,” wrote the Citi analysts.

Wynn Macau is a unit of Wynn Resorts (NASDAQ: WYNN), while Sands China is controlled by Las Vegas Sands (NYSE: LVS). MGM Resorts International (NYSE: MGM) owns about 56% of MGM China.

Macau Rebound in 2024

Operators, including Wynn Macau, notched a combined 2023 GGR of $22.7 billion. That was still well off the 2019 high of $36.3 billion, indicating plenty of runway for continued recovery this year in the Special Administrative Region (SAR).

Specific to Lawrence Ho’s Melco Resorts & Entertainment (NASDAQ: MCLO) and Wynn Macau, that pair have been able to swiftly shift away from a focus on VIPs, a plus at a time when Macau’s junket industry remains battered. Additionally, those two companies have reaped benefits from catering to premium mass players, which analysts view as a more resilient demographic than standard mass bettors.

“We anticipate industry EBITDA margin in 4Q23 to remain largely unchanged quarter-on-quarter at around 28.5%,” added Cheung and Choi. “At an individual operator level, we believe that quarter-on-quarter volatility in EBITDA margins has more to do with the operators’ market share change for the quarter rather than the amount spent on player reinvestments.”

The Citi analysts predicted that Grand Lisboa operator SJM and Wynn Macau will be the Macau concessionaires to sport the largest fourth-quarter EBITDA improvements.

Citi Bullish on Macau Stocks

Macau casino stocks entered 2024 deeply discounted following dismal showings last year. In 2023, only MGM China posted positive returns, while the other five concessionaires experienced double-digit share price declines.

Macau gaming equities have gotten so inexpensive that some analysts believe the asset class is pricing in a deep recession or depression-like conditions that are unlikely to become a reality. Those trimmed multiples are among the reasons some analysts are constructive on Macau stocks.

For its part, Citi boosted price targets on Melco, MGM China, SJM Holdings, and Wynn Macau while reiterating a long-term bullish view on Galaxy and Sands China.