JP Morgan analysts DS Kim and Mufan Shi say they expect Macau’s gaming industry to achieve overall EBITDA (earnings before interest, taxes, depreciation, and amortization) of US$1.7 billion for the second quarter of 2023, buoyed by all-time high margins.
In June, the city’s Gaming Inspection and Coordination Bureau (DICJ) reported gross gaming revenues (GGR) of US$1.88 billion, a 47 percent improvement over the first quarter and a 205 percent increase over the same period last year.
If that trend continues, the sector would see profitability reach 73 percent of 2019 levels, before the Covid-19 pandemic shut everything down. As reported by Inside Asian Gaming, that means EBITDA margins would reach 26 percent, beating the all-time peak of 24 percent, and could climb to 30 percent by 2025 thanks to “mix improvement and cost savings.”
The second quarter “also marks the first quarter in three-plus years that every operator (including SJM) generated handsome FCFs (free cash flows), with industry EBITDA (annualized at US$7 billion) more than 2x the burden from interest (around US$1.5 billion per annum) and capex (US$1.5 billion to US$2 billion per annum),“ the analysts stated.
Kim and Shi wrote that, in their estimation, Macau is “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.
“This makes us very comfortable—even under a reasonable bear-case on macro—to look for hefty >50 percent potential upside … and we believe 2Q earnings should help drive this with all-time high margins and encouraging commentary.”
They added that the “earnings up-cycle is far from over.”
According to Macau Business, Alidad Tash, managing director at 2nt8 Ltd., said the numbers are especially “promising” given that June is a “traditionally slow” month in Macau in terms of visitation and gaming results. Macau had a daily average of “over 70,000” visitor arrivals so far June, deemed “satisfactory” for the slower summer season, according to the Macau Government Tourism Office.
“The GGR for the second half of the year is expected to gradually increase as transportation gets back to its pre-pandemic levels,” Tash wrote. “The non-gaming efforts by the gaming companies (e.g., concerts) shift into a higher gear, and the newly added hotel product reaches a higher occupancy.”
However, Ben Lee, managing partner of IGamiX Management Consulting, pointed out that June is the second month this year to not realize month-on-month growth, suggesting that the city’s gaming sector may have “plateaued” in terms of its “mass-driven recovery.”
Compared to 2019, first-half results are still more than 46 percent lower than in pre-pandemic times. And a new study by the Shanghai Cooperation Organization Research Institute at Shandong University and the University of Macau indicates that Macau still faces critical challenges as it moves away from its dependence on VIP gamblers, and on gaming in general as an economic driver.
In South Korea, meanwhile, foreigner-only casino operators Paradise Co. and Grand Korea Leisure (GKL) both saw robust GGR growth for the month of June.
Paradise, which operates the Paradise City integrated resort in Incheon as well as casinos in Seoul, Busan and Jeju, saw an increase in casino sales of $72.6 million in June, up 39.5 percent month on month, for the highest total since the pandemic started, and more than 634 percent higher than the same month in 2022.
GKL, which operates three Seven Luck-branded casinos in Seoul and Busan, saw casino revenues grow almost 17 percent month on month and 20.8 percent year on year to US$22.5 million in June. Casino sales for the first half of 2023 are now up 120 percent.
Analysts say the upward trajectory at Korea’s foreigner-only casinos will continue through 2023 due to the return of Chinese “general VIPs” and mass-market players.
