Tough times ahead for Macau ops: MS

Monday 7th of January 2019

Tightened liquidity and a full smoking ban in Macau will likely pressure VIP and premium mass growth in 2019, warned Morgan Stanley analysts.

On Monday, the brokerage released a note announcing it has negatively revised its GGR growth estimates for 2019 to -2 percent (from +5 percent), warning that EBITDA growth in the first quarter of the year could also turn negative.

The brokerage said that earnings revisions are set to bottom sometime in 2019.

“While Macau is a structural growth story driven by low penetration and improving infrastructure, we see the cyclical slowdown continuing in 2019. We change our industry view to In-Line from Attractive due to tightened liquidity, full smoking ban pressuring VIP and premium mass growth in 2019, and potential decline in EBITDA YoY growth in 1Q19,” said the analysts on Monday.

“License renewal remains a key overhang, and could keep valuation multiples lower than long-term averages,” they added.

Looking at individual operators, Morgan Stanley said it expects MGM and Melco to take market share in 2019, while it preferred Sands due to better positioning in the base mass market.

Despite the concerns, MS also noted that 2019 could be an inflection point for long-term performance due to the opening of the HZMB’s potential to drive higher mass grind revenue.

Recent policy relaxation in China's property market could drive macro improvement
in China and thus Macau's GGR, it added.