Macau’s six casino operators are forecast to notch third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) which is, in aggregate, 80% of the levels seen prior to the onset of the coronavirus pandemic, according to Morgan Stanley.
That could be a sign that China’s proliferating macroeconomic headwinds aren’t yet weighing on the special administrative region’s (SAR) gaming industry. While the bank forecasts the six concessionaires will reach 80% of pre-COVID EBITDA levels in the current quarter, it projects MGM China will be the stalwart as that operator ascends to 120% of pre-pandemic EBITDA highs.
MGM China has more tables, redesigned casino floors, adding F&B (including bubble tea) on the floor, removing walkway at the casino floor, use of RFID chips, creative marketing programs, and personalized experiences rendered,” noted the Morgan Stanley analysts. “Peers are acknowledging the lead, and hoping to pick up a trick or two.”
MGM China operates two integrated resorts in Macau and is 56% owned by MGM Resorts International (NYSE: MGM).
Premium Customers Supporting Macau Casinos
The six Macau concessionaires are Galaxy Entertainment, Melco Resorts & Entertainment (NASDAQ: MLCO), MGM China, Sands China, SJM Holdings, and Wynn Macau. In previous eras of vibrancy for the gaming enclave, it was VIPs who drove gross gaming revenue (GGR).
This year, data suggest it’s premium mass customers — the segment in between mass-market players and whales — that are doing the heavy lifting while there are modest signs high rollers are starting to return. Those are positives for Macau operators because mass-market players are more economically sensitive and likely to scale back spending if the mainland economy weakens.
“This is why the [Macau] recovery is premium led (and grind mass has lagged),” added Morgan Stanley. “Younger patrons are visible on casino floors as well as around the resorts. High-end customers are spending as much or even more than pre-COVID levels.”
That’s a plus for operators, such as Sands China, that have significant retail space leased to luxury brands.
“They claim that similar to luxury sales in China, the top 1 percent of mainland Chinese are traveling and spending on entertainment,” observed the Morgan Stanley analysts.
China Economy Not Pinching VIPs
While the return of high rollers to Macau has been incremental, there are signs it’s gaining pace in recent weeks. The advantage for concessionaires is that while these bettors are smaller in number, their average bet is around $13K per hand, and they’re not as economically sensitive as their mass-market counterparts.
The resilience of and increased visitation by the VIP cohort is likely one reason why Macau topped Las Vegas in GGR terms in the first half of this year, regaining its crown as the world’s top casino center.
Morgan Stanley added that house direct VIP service is “already above 2019 levels and thus incremental VIP revenue should come from casual junkets.”
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