Macau casino operators face revenue slump as analysts pin hopes on ‘pent-up’ rebound in second-half
- Macau casinos face 50 to 80 per cent potential slide in revenue in the next two or three months amid closure order
- Pent-up demand could attract gamblers to world’s biggest hub in the second half, analysts say
Macau casino operators are likely to write off their performance in the first quarter as the number of visitors shrink and companies comply with an order to shut their premises to gamblers for two weeks to help contain the coronavirus outbreak, analysts said.
Gross gaming revenue in Macau could drop by 80 per cent for the three month to April 30, as the outbreak takes its toll on the economy, according to Morningstar Inc’s equity analyst Chelsey Tam. Revenue could recover by 15 per cent in subsequent months through year-end on the back of pent-up demand, she said.
Overall, Morningstar expects the industry revenue to decline by 20 per cent in 2020, before “getting back to normal in 2021.”
“People will want to get out of their homes after nesting for months,” said Tam, who is based in Hong Kong. “We think this is a good opportunity for long-term investors to go bargain hunting in the Macau gaming coverage.”
Tam, who has a buy recommendation on MGM China, Wynn Macau, Melco Resorts, SJM Holdings and Sands China, said the stocks are undervalued.
The Macau government issued the shutdown notice after a hotel employee was infected by the coronavirus, who is now among 10 cases recorded in the city. The deadly virus has since spread from the epicentre in Wuhan, the capital of central Hubei province, to more than a dozen countries.
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That outbreak is yet another blow to the industry, which saw a fourth straight month of decline in January. Gross gaming revenue fell 3.4 per cent in 2019, reversing a two-year advance, after the recent fallout from anti-corruption drive and social unrest in Hong Kong. The industry is the lifeblood of the economy, contributing more than 80 per cent of Macau’s annual tax collection, according to government data.
Wynn Resorts has the highest relative exposure in Macau, deriving 72 per cent of its consolidated revenue from the world’s biggest gambling hub in the 12 months through September 2019, Moody’s Investors Service said. It was 65 per cent for Las Vegas Sands and 22 per cent for MGM Resorts.
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While the outbreak is credit-negative to these operators, Moody’s keeping their ratings unchanged, because they have a significant level of consolidated cash resources, free cash flow prospects and other forms of liquidity.
Jefferies estimated that February gross gaming revenue could drop by a steeper 65 per cent compared to the same month in 2019, according to a research note released on February 5. The firm amended its initial forecast for a 31 per cent drop to take into account the weaker traffic and shutdown notice.
Sanford C. Bernstein said first quarter results from gaming operators in Macau would be “awful.” Gross gaming revenue in the first quarter of 2020 could slide by 50 per cent from a year earlier, assuming “soft business” conditions when the casinos resume operations in two weeks, it said in a statement on February 4.
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If the shutdown were to remain in place for the rest of the first quarter, the firm estimated that gross gaming revenue would plunge by 70 per cent year on year in the first quarter. It expects a recovery in the second half of 2020, assuming the coronavirus is brought under control and travel into Macau resumes.
During an earnings call on January 29, Las Vegas Sands’s Chief Operating Officer Robert Goldstein said “I’m a big believer in pent-up demand. When it (the coronavirus) does resolve, Macau is going to be very, very, very busy because, whether you know it or not, these folks like to gamble.”
