Macau’s gaming industry expected to further strengthen as market continues recovery through 2024

In a letter on Wednesday, CBRE Capital Advisors Inc. said that as the market continues to rise through 2024, credit fundamentals in Macau’s casino industry are expected to continue to strengthen.

As part of its credit research coverage of international gaming, hotel, and leisure organizations for leveraged loans and bonds, the organization offered a thorough analysis of the casino sector, including many companies with Asian assets.

Experts at CBRE state that despite inflation, spreads across sectors have declined over the last year and are still quite modest. This is due in part to persistent consumer discretionary spending on leisure activities.

They highlighted Macau-exposed casino loans in particular as being particularly alluring because of their higher return and ongoing recovery as compared to their US counterparts.

The study predicts that this year will see an approximate 30% rise in tourism and gaming revenue before levels closer to China’s GDP growth rate. For 2024 and 2025, respectively, CBRE projects gross gaming revenue to reach around US$28 billion and US$29 billion, in keeping with the local government’s projected growth rate.

The bank anticipates that more mass market visits will spur this growth and raise profitability at the property level. The poll discovered that operators’ profits before interest, taxes, depreciation, and amortization (EBITDA) growth has outpaced gaming revenues, despite the fact that premium and basic mass gaming volumes have propelled Macau’s recovery.

According to CBRE, despite the VIP category’s strong performance, it is expected to remain modest in the absence of legacy junket business. Operators in Macau have been successful in converting antiquated junket rooms into gaming lounges and prudently growing direct VIP business.

Experts expressed confidence about Macau’s long-term status, particularly in comparison to neighboring jurisdictions, even if it may take longer to recover from the pandemic. They predict that EBITDA growth will lead to an industry-wide deleveraging, with Studio City Enterprises and SJM Holdings Ltd. probably seeing the greatest leverage improvements.

Given the sector’s past enterprise value to EBITDA trading levels, CBRE observed that the restoration of normalized leverage would progressively increase equity buffers. Although the sector’s excellent liquidity levels suggest that the new concessions announced in January 2023 would not significantly increase capital expenditures, analysts believe they will be sustainable. The bond spreads pertaining to Macau gaming firms were deemed reasonable, with healthy cash balances and manageable unsecured maturities that extended till 2026.

Original story by: GGRAsia