The Future is Brighter for Macau as Profits Grow Back

January 20, 2023 Macau Earnings & Filings

China only recently loosened up its strict zero-COVID rule. However, it seems to be yielding quick results for Macau casino owners, who are already seen to be lucrative.

Although the six concessionaires are anticipated to post fourth-quarter losses in EBITDA, these losses are anticipated to be significantly lower than those recorded in the previous quarter. Additionally, it’s expected that the operators will start to profit in 2023. According to JP Morgan, Macau’s gross gaming revenue (GGR) has been averaging $35 million to $36 million per day through the first fifteen days of this month. The bank also noted that those numbers have been trending upward in recent days.

After removing the largely dormant VIP segments, analyst DS Kim stated, “This print tells us that the mass/slot GGR run-rate has recovered to over 50% of pre-Covid levels, hitting well over EBITDA break-even levels (mid-30%s recovery in mass), and reaching an important milestone of FCF (free cash flow) breakdown (mid- 50%s of recovery in mass) for the industry.

The rebound in the mass-market segment is strong and has already surpassed 40% of pre-pandemic levels, which is significant for operators like Galaxy Entertainment and Sands China. JP Morgan’s Kim highlighted the proportion might hit 60% with the coming of the Chinese Lunar New Year.

Macau’s profitability is essential for improvements
Prior to China’s recent departure from the zero-COVID rules, Macau operators had a difficult time in the 2020–2022 time frame. The six businesses had to deal with travel restrictions and brief closures, which reduced the number of people visiting the gaming destination.

As a result, earnings quickly turned into losses, operational costs rose, and debt levels increased. The effect is that Macau concessionaires can no longer be found with investment-grade credit. But if the present recovery broadens, things might get better there.

We just confirmed ratings for Studio City Co., Melco Resorts & Entertainment Ltd., MGM Resorts International, Las Vegas Sands Corp., and MGM Resorts International. along with Wynn Resorts Ltd. S&P Global Ratings states that “Macao’s large GGR recovery could enable rated issuers to reduce debt to below our downgrade level, but not until late 2023 to early 2024.

The ratings agency has “negative” outlooks upon these gaming companies due to their “extended financials” and the potential for the reinstatement of COVID-19 limitations.

There is some evidence that Macau is profitable.
In addition to returning to profitability, Macau gaming companies should have significant top-line growth this year, with room for further growth in 2024.

We updated our mass gross gaming revenue projections upward (GGR). In our base model, GGR would increase to levels between 60% and 70% of 2019. This is above the 50% to 70% range of our previous projection, S&P continued.

The research company also pointed out that during the coming year, sales growth might be able to reduce high cash burn rates while also supporting improved credit metrics.