Investment bank Morgan Stanley has slashed its Macau EBITDA estimates through 2023, including a 69% cut for 2021, on concerns that COVID-19 restrictions limiting customer flow will not be removed anytime soon.
Just days after the publication by the government of proposed amendments to the gaming law that resulted in stocks of Macau’s casino operators losing 26% of their value (more than US$18 billion) in a single day, Morgan Stanley analysts cut their total 2021 EBITDA estimate for the Macau market by 69% from US$2.8 billion to US$867 million.
They also cut 2022 estimates by 29% to US$6.4 billion and 2023 by 23% to US$9.0 billion, with revenue estimates down 27% (US$12.5 billion), 21% (US$23.9 billion) and 14% (US$31.5 billion) respectively across the same period.
“We are confident about pent-up demand, which should eventually drive future mass revenue to be higher than in 2019, based on China’s retail sales and Vegas gaming revenue … however we are concerned that the status quo (visitation at 25% of pre-COVID level, GGR at 35% and mass at 50%) could continue for longer,” state analysts Praveen Choudary, Gareth Leung and Thomas Allen in a note.
“With zero tolerance policy, lower efficacy for certain vaccinations and Delta variant, recovery could be months or years away.”
Morgan Stanley is less bearish, however, on the potential impact of gaming law amendments – particularly around investor concerns on license re-tendering and China’s apparent negative view on gambling.
On the latter, the analysts noted that China has kept the Individual Visit Scheme (IVS) visa system open with Macau since September 2020, even though the same IVS program with Hong Kong remains suspended.
On the issue of re-tendering, they suggest the tone of the government’s language hints at a determination to issue new licences sooner rather than later, thus removing “overhang”
“Previously, we (and consensus) had expected a temporary extension of licenses for 2 to 3 years, which could have dragged this issue out longer,” they state. “Second, the language in the document suggests status quo in terms of number of licenses and tax rate, both positive compared to market expectations. The document is about extending licenses – not stopping gambling in Macau, about which some investors might be concerned.”
Morgan Stanley notes three key concerns they’ve heard from investors in relation to gaming law amendments: oversight of dividends, oversight of operations and increased local ownership, but said only oversight of operations could be conceived as negative at this stage due to the lack of detail on how such a system might work.
They note that significant recent capex commitments by the likes of Sands China, Wynn Macau and Galaxy should alleviate future dividend restrictions while an ownership rule above the current requirement for one local Macanese person to own more than 10% “is not connected to listcos and should not matter to equity investors.”
“We are more concerned about reopening because Macau gaming will thrive and casino licenses will be awarded/renewed – but timing of full border opening between Hong Kong, Macau and China is still unknown,” the analysts state.
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