Macau 1Q24 EBITDA could come in below GGR growth as operators focus on deleveraging

Morgan Stanley predicts that in the first quarter of 2024, Macau’s EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) may fall below 6% quarter-over-quarter increase in Gross Gaming Revenue (GGR), a sign that operators are still placing a high priority on deleveraging.

Morgan Stanley analysts Praveen Choudhary, Gareth Leung, and Stephen Grambling posted a note announcing the upcoming earnings season, which will start later this month with Las Vegas Sands, the parent company of Sands China. They predicted that industry corporate EBITDA could increase by roughly 5% on a quarterly basis to reach US$1.9 billion. This figure corresponds to almost 81% of the EBITDA levels that were seen during the 2019 first quarter.

Experts predict that there will be fewer benefits from operational leverage in the first quarter, even if some operators have said that they want to deleverage in the short term after the outbreak. They put this down to factors like wage increases and more aggressive marketing campaigns by certain companies to attract customers.

Gambler spending power, updates on operational expenses, reinvestment costs, and committed investment estimates are important metrics to monitor throughout the earnings season. Investors will also be watching for any shift in the company’s stance on dividend resumption, given that Sands, Melco, and SJM have not announced dividends since the outbreak.

According to the experts, MGM China and Wynn Macau would be preferred, and rises in mass market share and relative EBITDA performance would be crucial. Additionally, they think that Grand Lisboa Palace would lead to stronger EBITDA growth, which will be advantageous for SJM shares.

Given that both Sands and Galaxy are expected to lose market share in the first quarter of 2024, Morgan Stanley recommended taking a cautious approach toward them. Sands may be negatively affected since it might not get turnover rent in Q1, and Galaxy might run into problems because of rising costs.

Additionally, Morgan Stanley said that although Melco Resorts may have gained market share in February and March, profitability may have suffered due to growing expenditures. Melco emphasized that debt reduction will be a primary priority in 2024 during its conference call for the fourth quarter of 2023.

Original story by: IAG