Travel restrictions are gradually being lifted between Macau and China, although analysts are not expecting a v-shaped recovery and warn it may be some time before visitation can get back to normal levels.
The Q2 results recently reported by all the operators made for grim reading, but didn’t contain any major surprises. Investor attention was more focused on how the companies had trimmed costs to reduce cash burn and on management views on the timeline for recovery.
Executives from all operators expressed confidence in the long-term prospects for the Macau market, though were mixed on just when that might occur.
Although all six reported a loss for the quarter, Bernstein notes that they are likely to break even on an EBITDA level by mid-Autumn, once individual visit and group visas have been fully reinstated. Those properties focused on the VIP and premium sectors will significantly outperform in the short term given the ramp up to high volumes of mass visitors is likely to take some time, it says.
The firm says the operators should be able to break even once revenue returns to about 35 to 40 percent of Q4, 2019 revenue.
In August, gross gambling revenue dropped by 94.5 percent, its fifth straight month of a more than 90 percent decline.
China began issuing visas for Zhuhai residents on August 12 and since then, visitation has improved to about 7,000 a day from a few hundred visitors in June. From August 26, IVS visas will be available across Guangdong Province and from Sept. 23, the whole of China.
In terms of Q2 results, perhaps one of the most noteworthy elements was the big jump in market share for former monopoly SJM Holdings. The company had been losing share for years in favour of the newer resorts on Cotai, though had 30.3 percent of the market in the period, up from just 13.3 percent in the prior quarter due to its position on the Peninsula and exposure to the local mass market. Analysts don’t expect this competitive advantage to last once normality returns.
The company has said it’s not optimistic about a near term recovery, but has said it still plans to push on with opening its Lisboa Palace property on Cotai by the end of this year. Analysts are sceptical and say it’s not likely to open until the first quarter of next year.
"We believe Galaxy is in the best liquidity position to weather the pandemic storm,"
Galaxy Entertainment was an outperformer, posting a slight beat to analysts’ expectations, coming in at 7 percent above the consensus Bloomberg estimate for adjusted EBITDA.
The company reduced its cash burn from $3.4 million to $2.5 million in the second quarter and is pushing on with its development plans for Galaxy Phase 3.
“We believe Galaxy is in the best liquidity position to weather the pandemic storm,” Bernstein says. “With the tourism visa resumption in Aug/Sep, we expect to see faster recovery for Galaxy (than some others), which has a higher mix of premium+ customer segments.”
Melco Resorts and Entertainment’s results came in line with expectations, though management perhaps hit a brighter note than some others. The company said it doesn’t expect a v-shaped recovery, but is confident about the long-term prospects in Macau.
Wynn Macau’s management was also positive about prospects in the territory, though its results came in slightly below expectations due to negative VIP hold and low mass hold.
The company confirmed it has postponed all major project capital expenditures for the remainder of the fiscal year 2020 in light of the COVID-19 pandemic and its risk to employees.
The company has been in the design phase of the new Crystal Pavilion, located on a 7-acre parcel of land adjacent to Wynn Palace.
Sands China also reported lower-than-expected results due to weak hold, but again stressed its belief in the long-term fundamentals of the Macau market.
In its operational update, it noted that construction of the Four Season Hotel Tower Suite is complete, and work is progressing to transform its Sands Cotai Central resort into a London-themed property. The interior work is expected to be finished in Q1 2021, while construction of the Londoner Hotel is also almost complete.
The story was similar at MGM China, whose results were also in line with consensus.
SJM Holdings (880:HK) has 22 casinos in Macau and is still targeting an opening by the end of this year for its Lisboa Palace resort once all the inspections have been completed.
In June, the company announced Frank McFadden had been appointed Chief Operating Officer for Gaming and Hospitality, replacing the recently-resigned Ng Chi Sing.
According to an internal memo signed by SJM Chair Daisy Ho, McFadden will be mainly responsible for the casinos in Grand Lisboa, Hotel Lisboa, Ponte 16, and Jai Alai, plus the group’s hospitality services, gaming analytics, and property planning and enhancement.
McFadden has been with SJM since 2006, most recently serving as president for International Business Development.
SJM’s 2Q 2020 EBITDA was 5 percent below the Bloomberg consensus, coming in with a loss of HK$784 million. Overall 2Q GGR was HK$0.95bn, down 91 percent year on year.
GALAXY ENTERTAINMENT GROUP
Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. The company is currently working on Phase 3 of Galaxy Macau, which is to feature 1,500 hotel rooms, some casino space, a large-scale arena with 16,000 seats, and 400,000 square feet (37,161 sq metres) of MICE space. The launch is scheduled for the first half of next year.
Q2 revenue fell 91 percent to HK$1.15 billion ($148.3 million), while it swung to a loss on the adjusted EBITDA level of $1.37 billion compared with a $4.33 billion profit a year earlier. Hotel occupancy across the group’s five hotels was just four percent.
MELCO RESORTS & ENTERTAINMENT
Melco Resorts & Entertainment (6883.HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila. It is also developing a resort in Cyprus and maintains a strong focus on Japan.
Melco recently boosted its holding in the company that owns the Studio City Resort following a share transaction providing $500 million for the property to complete the next phase of its expansion plans.
Melco’s indirectly held MCO Cotai unit now owns 54.7 percent of Studio City International Holdings, up from 54.1 percent previously. MCO bought shares worth $280.8 million in the company at a price of $3.89 a share.
Wynn Macau (1128:HK) operates two resorts, with its $4 billion Wynn Palace opening in 2016. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort is non-gaming. In November, the company opened elements of its new Lakeside Casino at Wynn Macau.
Wynn Macau operating revenues came in at US$11.9 million, a 97.8 percent decrease.
The firm’s statement noted that its available cash as of June 30, 2020 totaled US$3.8 billion.
CEO Matt Maddox noted: “In Macau, the authorities have begun to gradually and thoughtfully ease some visitation restrictions, and we are confident the market will benefit from the return of the Chinese consumer as we move through the back half of 2020.”
The group’s focus on the premium segment is likely to help fuel its recovery.
Sands China (1928:HK) has five properties in Macau. The company has 12,000 hotel rooms and suites, making up for 48 percent of hotel rooms run by casino operators in Macau. In a vote of confidence in Macau, the company recently pushed ahead with the three-day Sands Shopping Carnival from Friday to Sunday, attracting around 500 businesses and thousands of members of the public.
The carnival is known as the largest shopping event of its kind in Macau, held at the Sands Cotai Expo. It provides a platform for local SMEs and Sands retailers to connect with members of the public, and is in line with the government’s “Consume for the Economy” Initiative.
For Q2, Sands China posted a net loss of US$549 million. Revenues for the quarter came in at only US$40 million, which was a 98.1 percent drop from the same quarter in 2019.
MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February last year. The HK$27 billion IR features 1,400 hotel rooms and suites, meeting space, high end spa, retail offerings and food and beverage outlets and its ramp up has helped the company gain market share in the latter half of 2019.
MGM China saw its net revenues fall 95 percent year-on-year to only US$33 million.
The company gave an update on its liquidity position and has enough cash to cover a zero revenue environment in Macau for the next 22 months.
Like Melco and Galaxy, it’s still committed to pursuing a license in Japan, though on a recent conference call management suggested that would not be at any cost.
MICE business plummets on Covid-19
The number of Meetings, Incentives, Conferences and Exhibition Events (MICE) held in Q2 in Macau dropped by 89.4 percent to just 38 due to Covid-19 cancellations. Information from the Statistics and Census Service showed the number of participants dropped by 93.9 percent to 22,000. Cancellations in the quarter included the annual G2E Asia industry get together to have been held at Sands China’s The Venetian in May.
The average duration of meetings and conferences was 0.7 of a day, down by 0.7 day a year earlier, with the total floor area down 93.4 percent. There were just two exhibitions in the quarter, both from non-government organizations. Receipts from the exhibitions totalled MOP1.69 million, with expenditure of MOP1.89 outstripping revenue. As a result the receipts were MOP0.36 million in the red. All of the 49 exhibitors that participated in the exhibitions in the second quarter were local exhibitors.