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China – Macau’s casinos set to break first positive record since the pandemic

By - 4 July 2023

Macau’s casinos are on course to provide their best ever EBITDA margins of 26 per cent on the back of EBITDA of US$1.7bn for the three months to 30 June 2023, according to JP Morgan.

On the back of strong revenues in June, analysts DS Kim and Mufan Shi have predicted an EBITDA increase of 47 per cent from the previous quarter with profitability hitting 73 per cent of 2019 levels. EBITDA margins reaching 26 per cent would be a new record with a historical peak of 24 per cent. It could go as high as 30 per cent by 2025 due to ‘mix improvement and cost savings.’

DS Kim and Mufan Shi “[This latest quarter] also marks the first quarter in 3+ years that every operator (including SJM) generated handsome FCFs (free cash flows), with industry EBITDA (annualized at US$7bn) more than 2x the burden from interest (around US$1.5bn per annum) and capex (US$1.5 billion to US$2bn per annum).”

“We view Macau as one of very few sectors in China comfortably gliding through an estimate up-cycle against macro headwinds, and this ‘scarcity value’ doesn’t appear to be appreciated (at all) at the current price of 9x EV/EBITDA, which in fact is near the trough levels,” they added. “This makes us very comfortable, even under a reasonable bear-case on macro, to look for hefty more than 50 per cent potential upside and we believe 2Q earnings should help drive this with all-time high margins and encouraging commentary.”

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