Morgan Stanley is now less optimistic about Macau’s continued strengthening in 2022. As a result, the financial firm’s analysts have reduced the expected gross gaming revenue (GGR) for the city by 30% to $15 billion.
Although the institution noted a “choppy recovery,” it said that there are still “overhangs” with regulations and travel restrictions. These will be addressed in the first half of 2022. The latest predictions come on the heels of weaker performance in December, as well.
Morgan Stanley also stated that it had reduced its GGR estimate in 2023 by 20% to $26 billion. This means that casino GGR for 2022 and 2023 will be roughly at 42% and 70%, respectively, of their pre-pandemic levels in 2019.
Analysts Praveen Choudhary, Gareth Leung and Thomas Allen stated that the lower estimate of 2022 GGR is due to China’s tightened crackdown against illegal capital outflows and possibly slower travel recovery in the COVID-19-zero environment and Omicron, the new COVID-19 variant.
They also stated that the GGR will be lower in 2023 due to lower VIP revenues at $1.99 billion, or 14% of 2019, compared with 54% of 2019. That drop comes as junkets serving the city are likely to be eliminated.
For 2022 and 2023, the institution’s EBITDA (earnings before interest, taxes, depreciation and amortization) estimates for the Macau casino industry are lower by 40% and 8%, respectively, at $3.81 million and $8.31 billion, respectively. Analysts stated that they expect 2023 EBITDA to be only 90% of the level in 2019.
It isn’t all bad news, though. The analysts stated that they maintain their “attractive view” on Macau’s casino industry due to a variety of reasons, including clarification regarding the licensing issue.
Unless the authorities grant a limited extension, which is permitted by Macau gaming law, the six existing gaming concessions will expire in June 2022. This extension can be granted in increments of up to five years, extending the original 20-year term. In lieu of the extensions, full licenses could be issued.
According to Morgan Stanley, it expects three events to be resolved within the next six months: publication of the report from the public consultation on Macau’s gaming laws review; new gaming law draft and approval of such bill by the city’s Legislative Assembly.
The analysts wrote that each of these events would provide clarity, even if they anticipate temporary extensions of license renewals beyond June 2022.
According to the institution, the immediate catalyst could be an increase in travel between Macau and Hong Kong. However, it cautioned that there could be other developments that will hinder the recovery of Macau’s market.
These issues included the ” “further crackdown on premium mass similar to junket VIPs,” no issuances of e-visas potentially capping Macau’s visitors and “punitive regulation” around license extension, such as higher taxes or non-gaming investments “driving lower returns on invested capital.”
