Macau operators losing $800m a quarter

Macau operators’ gas tanks “are running low” after two years of Covid, with the companies reporting $800m in losses per quarter and $250m in cash flow leakage, Morgan Stanley reports.

The firm has cut its estimates for 2022 and 2023 as the crisis stretches on like a “long dry highway with no end in sight.”

Morgan Stanley is now expecting 2022 gross gambling revenue of $11bn, virtually unchanged from last year, while for 2023 it forecasts $23bn. Its estimates are 30 per cent and 17 per cent below market consensus.

It sees industry-wide EBITDA as being 76 per cent of 2019 levels next year, while it could reach 105 per cent the following year, assuming travel normalises.

Macau’s gross gambling revenue has been stuck at about 30 per cent of its pre-pandemic levels for the past six quarters, with no signs of any likely changes in policy that would ease visitation.

Hong Kong is slowly emerging from its worst outbreak since the beginning of the crisis, postponing any hope for a border reopening in the coming months, while China is also battling rising cases, resulting in the lockdown of millions of citizens.

“Without a meaningful uptick in visitation (easing travel policies) and mass revenue, companies (excluding Galaxy) will remain free cash flow negative, driving net debt higher and book value lower,” the firm said.

It stresses that long-term, it remains confident in Macau’s prospects and its beaten-down stocks should outperform. It said stocks and fundamentals are rolling along at the bottom and in this stage survival is key.

At the 4Q21 free cash flow to equity run rate, SJM Holdings could use all its cash in three months, Morgan Stanley said, although it does have an undrawn down loan facility of $170m, which could be used for one or two more quarters.

It estimates that Sands China and MGM China could run four three quarters, while Melco Resorts and Entertainment and Wynn Resorts could run for six and five quarters respectively. Galaxy Entertainment remains free cash flow positive and thus has no issues.

Source: Asia Gaming Brief