Macau casino operators earnings to be “more resilient” vs. other consumer segments in China

The revenues of Macau casino operators are probably more robust than those of other Chinese consumer groups, according to a Morgan Stanley research.

The data shows that Macau gaming shares on the Hong Kong market did well in the first half of 2023, but underperformed in the second half as investors were concerned that gaming revenue had peaked and may decline along with China’s consumption.

Macau casino stocks declined 15% overall in 2023, behind the Hang Seng Index by two points, despite a 334 percent year-over-year growth in gross gaming revenue (GGR) and industry profits before interest, taxes, depreciation, and amortization (EBITDA) rebounding to 70% of pre-COVID levels in 2023.

Macau operators’ multiple de-rating, according to Morgan Stanley analysts, has been disproportionate considering their stronger profit profiles than those of other industries. Based on their projections for 2024, they believe that trends in mass-market share and operational leverage will be significant factors driving Macau casino stocks. At present, the industry is trading at an appealing 10x enterprise value to EBITDA and 10% free cash flow to equity yield.

Morgan Stanley projects that the EBITDA of the Macau casino industry would rise by 34% in 2024 over 2023, ultimately reaching 100% of 2019 levels by year’s end. Even though GGR grew less quickly in 2024 than it did in 2023, the bank still expects GGR to expand at a reasonable rate of more than 10% in the majority of 2024 months.

Additionally, the research projects that Macau’s mass-market GGR will increase by 25% annually in 2024, reaching 120% of 2019 levels by the end of the year. The scientists believe that the construction of 17% more hotel rooms during the COVID-19 pandemic is partially to blame for this increase.

Original story by: GGRAsia