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China – Analysts pitch Macau’s return to form following IVS relaunch in Zhuhai

By - 11 August 2020

Analysts are describing the relaunch of the Individual Visit Scheme (IVS) for residents from Zhuhai to enter Macau as the most important ‘baby step’ yet for the region’s rebound with the hope being that visas for the rest of mainland China could be being issued in time for Macau’s Golden Week in October.

Vitaly Umansky, an analyst at Sanford C. Bernstein, believes the impact on GGR from the Zhuhai IVS restart alone is likely to be limited.

“However, the restart of IVS and group visa issuance (which has been suspended since late January) is another baby step in the right direction as China and Macau slowly loosen travel between the two jurisdictions,” he explained.

Daiwa Capital Markets analysts Andrew Chung and Terry Ng added: “We expect the entire Guangdong province to be next in line to resume IVS, and then followed by provinces without new confirmed cases. We note that 14 out of the 19 provinces with IVS eligible cities have not had new confirmed cases.”
JP Morgan believes there will be a steady return to form from a 94.5 per cent year-on-year decline in July to 85 per cent in August, 70 per cent in September and around 50 per cent by October.

JP Morgan’s DS Kim, Derek Choi and Jeremy An said: “This 50 per cent mark is important as all six operators can print positive EBITDA, with break-even points hovering at 35 per cent to 45 per cent of 2019 levels. Barring a second wave of COVID-19 in Macau, we are even more comfortable in expecting that a gradual resumption of travel visas should come in from here, say, for Guangdong by end-August, followed by other provinces from September in phases. We think it is not impossible to see travel visas for most major provinces to resume by the time of the October Golden Week.”

Credit Suisse analysts Kenneth Fong, Lok Kan Chan and Rebecca Law believe the rebound if the IVS returns for all of the Guangdong Province, could see GGR return to MOP$350m per day by the end of September.

“If the IVS is further relaxed for the whole of China in September, we believe gaming revenue could be about MOP$450m a day into October. The recovery is unlikely to be smooth – we expect GGR to be back to pre-COVID level by 3Q21.

“The recovery pace could be dragged by weak junket system and sentiment amid China’s recent campaign on anti-overseas gambling activities, operational constraints post reopening on social distancing requirements and the ability for players to move money smoothly across the border.”

Jefferies analyst Andrew Lee said: “The Individual Visit Scheme and group tours accounted for 47 per cent and 23 per cent of total mainland arrivals to Macau and are the key driver of GGR. Guangdong accounted for 46 per cent of total mainland arrivals to Macau with 73 per cent of Guangdong arrivals entering Macau via IVS. We believe this is the next step of the phased and gradual recovery, as we expect IVS will be relaxed for other cities within Guangdong next, followed by other cities and provinces across China.”

Bloomberg senior analyst Angela Hanlee believes Galaxy Entertainment is in an a strong position.

She said: “Galaxy Macau’s broad market positioning allows it to switch between focusing on VIP clients during upswings and a more defensive, mass-gaming approach during downturns, making it the best-positioned operator to capitalise on any Macau tourism recovery. A market-share grab at rivals’ expense could come on property upgrades and amenities.”

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