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China – Morgan Stanley increases Macau’s revenue earnings for the year by 42 per cent

By - 22 February 2023

With Chinese players now returning, Morgan Stanley is increasing its revenue and EBITDA estimates for Macau’s casino operators by 42 per cent and 70 per cent.

The investment bank is now predicting GGR of US$22bn in 2023 with EBITDA of US$5.8bn. By 2024 analysts there believe industry EBITDA will overtake 2019 levels.

Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Stephen Grambling said: “Resulting revenue/profit for Macau companies came in ahead of our expectations in the first two months of the year. However, we also find comfort in the sustainability of premium mass in the absence of junket business, which is important to achieve the pre-COVID level of EBITDA.”

“Apart from higher tax and higher gaming area rent, we also investigate the opex, staff cost and higher interest expense to arrive at the conclusion that EBITDA margin will be 500 bps higher than in 2019. The majority of this improvement is due to the absence of junket VIP, but as mass reaches a certain level, operating leverage also kicks in.”

“We expect 2024e industry EBITDA to be back to/ slightly above the 2019 level thanks to revenue mix improvement, and EBITDA margin could increase from 23 per cent in 2019 to 28 per cent in 2024.”

The revised outlook came as Macau generated GGR of US$1.43bn in January, its highest monthly total in three years.

Morgan Stanley is predicting 45 per cent recovery against pre-pandemic revenues in February with mass GGR hitting between 65 per cent and 70 per cent of pre-pandemic levels

“VIP recovery, which we estimate to be at around 15 per cent of pre-COVID levels, has also been tracking solidly for a segment that’s been considered ‘gone’ given the demise of junkets, but we highlight again that VIPs don’t really move the needle much for the profits/CFs given the very low margin of high-single-digit (note we’ve modelled zero profits from VIP in our forecasts) vs 35 per cent to 40 per cent for mass.”

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