A lack of alternative gambling options in mainland China has Macau well-placed to capture pent-up demand once border restrictions start to ease, pointing to a strong rebound in GGR and EBITDA levels in 2021, according to Morgan Stanley research.
But returning to 2019 levels is unlikely, the research says, with the probability that some social distancing measures will remain in place set to cap Macau’s recovery potential.
In a note examining the trajectory of Macau EBITDA levels in the midst of the COVID-19 pandemic, analysts Praveen Choudhary, Gareth Leung and Thomas Allen estimate Macau’s casino operators achieved breakeven EBITDA in 1Q20 based on DICJ revenue numbers of MOP$330 million per day. The majority of Q1 revenue was generated in January, before the devastating impact of COVID-19 struck the industry from Chinese New Year on 25 January onwards.
Breakeven EBITDA remains a possibility for 2Q20 too, although that is entirely reliant on the Individual Visit Scheme being at least partially reinstated in May, allowing daily GGR to lift from MOP$150 million at the end of March to MOP$300 million in May and MOP$500 million in June.
A more promising scenario, Morgan Stanley outlines, is rapid ramp due to pent-up demand.
“In the absence of alternatives (in terms of gambling in China or online gambling in Asia), we expect the majority of demand to come back to Macau,” the analysts explain. “Ideally, this would result in 4Q20 annualized and 2021 estimates similar to 2019 levels, which is what consensus is expecting.”
However, the analysts suggest a return to 2019 levels in 2021 may not be realistic, estimating instead that revenue and EBITDA will come in at 10% and 20% below consensus respectively next year.
“Our key concern is that social distancing could lead to peak capacity utilization being reached even if GGR does not reach the level in 2019,” they state. “Our 2020 EBITDA forecast is also 40% lower than consensus, highlighting high fixed cost business.”
It is noteworthy that Morgan Stanley raises “the absence … of gambling in China or online gambling in Asia.” Both have long been vehemently resisted by authorities in mainland China, however both alternatives have been canvassed by commentators as possible solutions to the industry pain caused by the COVID-19 coronavirus.
