Macau’s casino industry is poised to equal pre-COVID EBITDA numbers by 2024, and exceed them in 2025, thanks to better gaming mix and lower operating costs, according to JP Morgan.
In a Tuesday note which saw the investment bank update its Macau models to reflect 4Q22 and FY22 earnings results, analysts DS Kim and Mufan Shi highlighted the improved profit profile of the SAR’s gaming industry following the collapse of junkets and lingering after-effects of COVID.
In-particular they point to considerable OPEX savings, with current OPEX estimated to be running at 70% to 75% of 2019 levels – likely rising to between 85% and 90% as operations ramp back up.
While “10%+ savings here may not seem huge on the surface, this is actually very meaningful on a same-store basis if we consider the industry’s capacity [will be] 20%+ higher in 2024 versus 2019 based on number of casino hotel rooms,” the analysts write.
“This gives us confidence to forecast EBITDA to recover to about 100% [of 2019 levels] in 2024 and 110% in 2025, without any profit contribution from VIP. This puts us well ahead of consensus by 10%+, but we feel the risk to our numbers is actually on the upside given a possibility of direct VIP recovery and what we view as under-appreciated potential in non-gaming.”
JP Morgan also updated its models for Macau-wide GGR, which is estimated to reach 50% of pre-COVID levels this year and climb to 75% in 2025. The improvement is driven by mass GGR, which is tipped to reach 90% of 2019 levels by 4Q23, however the analysts note that GGR alone is no longer seen as the key metric in analyzing Macau’s numbers “given vastly different product mix and profit profile.”.
