Macau casino revenues will return to 95 percent of pre-Covid levels by 2024, supported by mass-market gaming, says JP Morgan analyst DS Kim.
In a note cited by Inside Asian Gaming, Kim said the recovery will gain real traction in the new year, when the city’s Big 6 gaming concessionaires begin their new 10-year terms.
Investors may be cheered by the forecast. Macau gaming has spent almost three years in the dregs due to the government’s tough stance on Covid prevention, which clamped down on travel to and from the city whenever new viral cases were identified.
According to Kim, “pent-up demand is real for most markets, and should be the case for Macau’s mass and non-gaming. So it boils down to Macau’s accessibility, and a series of recent events makes us feel confident in the direction of mobility easing within China, which we view as the only missing piece for Macau’s recovery, given e-Visa resumption last month.”
Kim foresees a return to profitability in the first quarter of 2023 as mass gaming and non-gaming rally to about 35 percent of pre-Covid levels. Free cash flow is expected to rebound by the third quarter with demand at 50 percent, followed by a “return to normalcy with mass demand reaching 100 percent in 2024.
“We maintain our model for mass and non-gaming demand to recover fully during 2024, but we place VIP numbers at near-zero levels, as this segment has probably been structurally impaired,” Kim wrote.
“Yet thanks to the high-margin nature of mass and solid cost-saving efforts, we still expect industry EBITDA to recover to 95 percent-plus of pre-Covid-19 levels by 2024.”
Kim noted that table volume in the city’s casinos will remain capped at 6,000 for the next term, “as the government won’t grant additional gaming land or capacity. However, this doesn’t mean growth will also be capped, as there is more than enough excess capacity in the market.”
In 2019, there were about 4,000 mass tables directly operated by casinos, not including those in junket rooms and satellite casinos, “so the table cap of 6,000 presents significant headroom … theoretically, up to 50 percent additional capacity for mass.”
In other Macau news, Secretary for Economy and Finance Lei Wai Nong says the returning concessionaires must bear responsibility for workers at those satellites, most or all of which will eventually close.
“The concessionaires that are in charge of those [casinos] need to assume the responsibility for these workers and relocate them to other casinos if the satellites are closed,” Lei said. “The companies are well aware of these responsibilities. Corporate social responsibility from concessionaires will continue to be our main goal for the upcoming 10 years, because this will guarantee the job stability of residents.”
A legislative member asked Lei for more detail on the concessionaires’ investment plans—a key license requirement as Macau strives to add more non-gaming attractions. Lei replied, “Since we are in the provisional award stage, we cannot give details of the contracts, but the government will announce them in due course.
“The six concessionaires have all met the government’s requirements in terms of employment of local staff, development of foreign markets and development of non-gaming projects. They have also put forward clear investment amounts, implementation plans and programs in their tenders.”
GGRAsia reported that the government of the special administrative district (SAR) is firmly allied with Beijing in its Covid prevention policies. Macau will come back slowly but surely, with an eye toward easing health-related restrictions. Elsie Ao Ieong U, secretary for Social Affairs and Culture, assured lawmakers Macau will “gradually reopen.
“We will continue to see [Covid-19] cases in the community, but we will act in line with the plans we have in place,” she said. If more than 5,000 infections are recorded, tougher restrictions could return, such as a ban on indoor dining at restaurants.
She acknowledged that it “would be impossible” for Macau to remain shut down indefinitely.
