Macau Q2 EBITDA Could Top $1.6B, MGM China Top Pick: Morgan Stanley

Posted on: June 27, 2023, 04:46h. 

Last updated on: June 28, 2023, 11:00h.

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

Macau casino operators could post a combined $1.6 billion in earnings before interest, taxes, depreciation, and amortization (EBITDA) in the second quarter, which concludes Friday.

MGM China
MGM Cotai in Macau. Operator MGM China is Morgan Stanley’s top Macau stock pick. (Image: YouTube)

That forecast is courtesy of Morgan Stanley analysts Praveen Choudhary, Gareth Leung, and Stephen Grambling, and represents a 46% uptick from the EBITDA levels seen in the special administrative region (SAR) in the first three months of 2023.

Spending per visitor is tracking 50% above 2019 level. Further upside to mass revenue could come from recovery in package tours, visitation from provinces further away from Macau and improving capacity for ferry and air travel,” noted the analysts in a recent report to clients.

In what’s become an increasingly mentioned theme, the Morgan Stanley analysts highlighted summer concerts at various Macau integrated resorts as catalysts for improved EBITDA and gross gaming revenue (GGR).

MGM China Best Idea

The six Macau concessionaires are Galaxy Entertainment, Melco Resorts & Entertainment (NASDAQ: MLCO), MGM China, Sands China, SJM Holdings, and Wynn Macau.

MGM China, which is 56% owned by MGM Resorts International (NYSE: MGM), is Morgan Stanley’s top pick among Macau casino stocks. The research firm highlights the addition of new tables at the operator’s two Macau venues, which could boost its market share among mass and premium mass bettors.

“We expect [MGM’s] 2024 mass-market share at 13% and 2Q could be tracking at 14% to 15% (16% in 1Q),” wrote Choudhary, Leung, and Grambling. “This means [estimated] 2024 mass revenue to be at least 30% above 2019, even if we assume no growth in industry mass revenue vs 2019.”

The analysts added their 2024 EBITDA estimate for MGM China is 30% above the operator’s 2019 mark, while consensus is just 10% above pre-pandemic levels, indicating the operator may not be getting the credit it deserves for its earnings resurgence.

“We forecast industry mass revenue to reach 115% and 125% of 2019 level in 2024 and 2025, respectively,” observed the analysts.

Melco, Wynn Have Potential Upside, Too

Melco and Wynn Macau are among the concessionaires that could deliver second-quarter earnings surprises, because those operators brought new amenities online during the June quarter.

Wynn Macau renovated its namesake property, while Melco likely benefited from summer concerts and the debuts of the Studio City Phase 2’s indoor waterpark and EPIC tower. On the other hand, Galaxy and Sands may have ceded modest amounts of market share in the current quarter due to not having their full complement of hotel rooms to market. Morgan Stanley believes the situation will correct in the July through September period.

Increased availability of hotel rooms could drive upside to third- and fourth-quarter EBITDA and GGR forecasts, according to the bank.