Bankers forecast Macau fourth quarter rebound

by William Brown Last Updated
Analysts track Macau?s slow and steady casino recovery

The Macau casino industry’s earnings before interest, tax, depreciation and amortisation will rise 140 per cent in the fourth quarter, compared to the first quarter of 2020 according to a banking group.

GGR Asia reports Morgan Stanley said the Macau industry was likely to report a positive EBITDA of approximately US$240 million in the fourth quarter.

“This is much better than the first quarter, when the industry made only US$100 million,” the bankers said.

But the “normal EBITDA run rate of US$2.3 billion per quarter in 2019 is still far away,” they said.

The improvement was likely to be driven by lower operating costs as well as better revenue mix in terms of gross gaming revenue.

“Industry daily operating expenses declined by 38 per cent year-on-year in the third quarter 2020 and we expect a similar decline in fourth quarter 2020.”

“This is because staff were let go or asked to take voluntary leave.

“The majority of this cost cutting will come back as volume increases.”

Higher contribution from mass market gambling was likely to have resulted in higher margin for the Macau operators, suggested the institution.

“We expect VIP to be 21 per cent of GGR in fourth quarter 2020, compared with 42 per cent in first quarter 2020.”

Morgan Stanley estimated VIP revenue declined by 83 per cent year-on-year in fourth quarter 2020, while it thought mass revenue declined by “only” 62 per cent year-on-year.

The official data on the market split for the three months to December 31 is expected next week from the Macau government.

Mass market and VIP gross gaming revenue in fourth quarter 2020 was down 69.7 per cent year-on-year, at just under US$2.73 billion, versus nearly four times this in the same quarter a year earlier.

Morgan Stanley noted the just concluded fourth quarter was likely to have seen “improvement” in money brought in from shop rents at resort malls, including via turnover rent.

The banking group associated that with improved customer demand for shopping in Macau, since the restoration of the Individual Visit Scheme in late September, the exit visa system under which independent travellers from the mainland can come to the gambling hub.

Macau and Vegas struggle as pandemic’s impact lingers

The coronavirus pandemic has decimated gambling revenue in Macau.

Yahoo Finance reported in December that in November, Macau gaming revenue is down 80.5 per cent in 2020 to $6.58 billion, according to the latest figures from Macau’s gaming bureau.

In November, Macau gaming revenue fell 70.5 per cent to $845.34 million, which was worse than the 65 per cent decline analysts expected, but better than the past six months, with each saw 90 per cent declines.

In June, Macau gaming revenue dropped 97 per cent year-on-year to $89.7 million, its lowest monthly gaming revenue ever.

The numbers have picked up since then, suggesting casinos there have seen the worst of the damage and are on their way back, though a recovery is likely to be very slow.

Located on the southern coast of China and a one-hour ferry ride from Hong Kong, Macau is the world’s largest legal casino destination by revenue, bigger than Las Vegas.

The city is home to 41casinos as of 2019, and only three US casino companies have properties there – Las Vegas Sands, MGM and Wynn.

In February, Macau’s government forced casinos to close for two weeks and they reopened with masks and social distancing on February 20.

Nevada closed casinos for far longer, 78 days, starting in mid-March and reopening on June 4.

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