Macau Operators Staring at Worst Results Ever in Q2, Analysts Focus on Operating Costs

Posted on: July 6, 2020, 09:14h. 

Last updated on: July 6, 2020, 02:42h.

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

The second quarter of 2020 could be the worst three-month stretch on record for Macau’s six concessionaires. The special administrative region’s (SAR) gaming industry remains hindered by travel restrictions keeping gamblers away from the casino center.

Macau Q2 Could Be Worst In History
Morgan Stanley says Q2 could be the worst on record for Macau operators. (Image: Chris McGrath/Getty Images)

Morgan Stanley said losses for Macau operators in the April through June period could be the “worst ever,” topping the bleeding experienced during the global financial crisis. The comment refers to 2002 through today. In 2002, a four-decade monopoly controlled by the late Stanley Ho was broken, and Macau’s gaming industry was opened to foreign competitors.

Morgan Stanley estimates that Las Vegas Sands (NYSE:LVS) — the largest Macau operator with five venues there — will post the largest unprofitable mark on the basis of loss before interest, taxation, depreciation and amortisation (LBITDA) at $286 million for the three months ending June 30.

In terms of loss before interest, taxation, depreciation and amortisation (LBITDA) as a percentage of enterprise value (EV), Melco Resorts & Entertainment (NASDAQ:MLC) and MGM China at 1.7 percent seem the cheapest,” said the bank.

Enterprise value is a company’s cash position, market capitalization and debt combined. Melco operates Altira Macau, City of Dreams and Studio City, while MGM China, the China arm of MGM Resorts International (NYSE: MGM), runs MGM Cotai and MGM Macau.

Managing Costs

The dismal second-quarter results from Macau operators aren’t surprising. The government there delivers gross gaming revenue (GGR) figures monthly and, as just one example, the June number plunged 97 percent.

Likewise, some operators previously telegraphed struggles for the quarter. For example, Wynn Macau said in June that it lost about $2 million per day in April and May at its eponymous integrated resort and Wynn Palace. With the bleak revenue and earnings forecasts in mind, analysts are turning their attention to how well operators are managing fixed costs.

Morgan Stanley said Sands contends with the highest daily operating expenses at an estimated $4.3 million, followed by rival Galaxy Entertainment at $2.9 million per day. However, those are the two most well-capitalized Macau operators.

The bank pegs Wynn’s daily costs at $2.6 million for the second quarter, while it forecasts Melco dealt with expenses of $2.2 million per day. MGM China and SJM Holdings looked good by comparison at $1.6 million and $1.3 million, respectively.

Scary Aggregate Loss

In total, Morgan Stanley is forecasting a combined second-quarter loss of $1 billion for the six Macau operators, a stunning reversal from the year earlier period when the group earned $2.4 billion. For the April through June period, the bank estimates VIP revenue tumbled 97 percent, while mass market turnover declined 95 percent.

With two abysmal quarters now in the books, Macau faces the specter of a 55 percent GGR decline this year, according to Morgan Stanley, and the bank acknowledges there’s downside risk to that forecast.

The brokerage firm sees turnover in the gaming mecca rebounding by 90 percent next year.