Macau Operator EBITDA Could Return to 2019 Levels in Late 2021

Posted on: January 27, 2021, 10:19h. 

Last updated on: January 27, 2021, 11:49h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

It’s possible that Macau’s gaming industry returns to profitability metrics seen prior to the coronavirus pandemic earlier than expected, according to a Chinese investment bank.

Macau EBITDA
Part of the Cotai Strip in Macau, seen here. Analysts say operators there could see strong EBITDA figures late this year. (Image: New Yorker)

In a recent note, China International Capital Corp (CICC) analysts covered the six concessionaires in the world’s largest casino center. They said the region could return to 2019 earnings before interest, taxes, depreciation and amortization (EBITDA) form as soon as the fourth quarter of this year.

Our expectation is based on mass-segment recovery leading to a gross gaming revenue (GGR) split gravitating to mass gaming driving higher EBITDA margin,” said the CICC analysts.

With high rollers still reluctant to return because of Beijing’s crackdown on cross-border money transfers, Macau’s near-term rebound hopes lie with mass and premium mass market players. Should that scenario come to fruition, and recent data suggest it is, it’s to the benefit of operators such as Las Vegas Sands (NYSE:LVS) and Galaxy Entertainment. That pair are less VIP-dependent than some rivals.

New Cotai Supply Helps Macau EBTIDA

New offerings on the Cotai Strip will be pivotal in terms of driving operators’ EBITDA back to 2019 levels, according to CICC.

Sands China’s new integrated resort, the $2 billion Londoner Macao, came online last week. SJM Holdings’ Grand Lisboa Palace is slated to open its doors at some point this year, though a specific date isn’t yet known. Galaxy’s third phase of the Galaxy Macau could have government inspections completed in the first half of this year and be ready for guests in the third quarter.

The Galaxy Macau effort is particularly important because it features new, non-gaming amenities, such as a 500,000-square-foot arena and 400,000 square feet of convention space. With license renewal looming next year, operators are looking to bolster non-gaming offerings, as Macau seeks more diversity in the local economy.

“Overall, we estimate Macau [market-wide] will net add about up to 2,800 hotel rooms in 2021, or a 7.5-percent increase on its existing 37,293-room inventory,” said the CICC analysts.

Bullish GGR Forecast

Entering 2021, there were signs of hope for Macau concessionaires, with some saying they were reaching break-even EBITDA in October and November. The consensus among market observers was that the group would start to recover in earnest in the second half of this year.

The CICC analysts forecast 2020 EBITDA for Macau’s operators of -$1.74 billion, but add that figure will turn positive to the tune of $4.45 billion this year and $9.6 billion in 2022. Analysts and investors may get some insight on 2021 views later today when LVS delivers quarterly results.

While EBITDA could return to 2019 levels late this year, that may be a case of newly realized operating efficiencies, not higher revenue. CICC estimates it will be 2023 or 2024 before Macau GGR returns to pre-pandemic levels.

Forecasting that mass-market players could drive as much as 80 percent of GGR in 2021, the bank says year-over-year gaming revenue growth may be 168 percent.