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China – Macau could return to ‘normalcy’ by end of 2023

By - 27 September 2022

Macau’s gaming floors should return to some level of ‘normalcy’ once eVisas and package tours from mainland China are brought back in as outlined by Chief Executive Ho Iat Seng at the weekend.

JP Morgan analyst DS Kim believes some operators will be able to report positive EBITDA in the fourth quarter as a result. The analyst believes that mass gaming revenues will rebound to between 25 per cent and 30 per cent of pre-pandemic revenues by the fourth quarter before hitting 85 per cent by the end of next year.

“We feel we can talk about a return to normalcy,” Kim said. “Most operators can turn EBITDA positive when mass GGR hits around 30 per cent to 35 per cent of pre-COVID levels, indicating some companies can start to print positive profits from 4Q.

The analyst said SJM Resorts would be left behind in the recovery though due to new casino operating expenses at Grand Lisboa Palace.

“FCF (free cash flow) break-even can be achieved at around 50 per cent to 60 per cent of mass GGR recovery for most operators, except Galaxy (which can print positive FCF at sub-30 per cent recovery thanks to net cash) and SJM (which probably needs near-full recovery to recover opex from GLP and satellite casinos),” Kim explained. “We expect all operators (again, except SJM) can be FCF positive by 2Q23, so we probably don’t need to worry about ‘liquidity runway’ anymore.”

“The timing/magnitude of easing is earlier/better than expected, adding conviction to our bullish stance on Macau gaming,” Kim added. “Although it’s tough to quantify the immediate benefit, we believe the resumption of eVisa and group tours should alleviate friction for a Macau trip, as well as signal to many that it’s OK to visit Macau, in turn boosting demand into the year-end holidays and 2023.”

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