In a bold prediction, investment bank Morgan Stanley anticipates a remarkable 25% year-on-year surge in Macau’s mass gaming revenues for 2024. Contrary to investor apprehensions, the bank asserts that Macau’s gaming sector will exhibit greater resilience compared to broader China discretionary spending, thereby challenging the prevailing market sentiment.
Analysis of Macau Gaming Stocks:
Despite a robust 334% year-on-year growth in market-wide Gross Gaming Revenue (GGR) and a recovery in industry EBITDA to 70% of pre-Covid levels, Macau gaming stocks experienced a surprising 15% decline in 2023. This decline, according to analysts Praveen Choudhary, Gareth Leung, and Stephen Grambling, resulted from unjustified concerns among investors who feared that Macau’s gaming revenue had reached its zenith and might follow the broader decline in China’s consumption.
Resilience of Macau Earnings:
Choudhary, Leung, and Grambling argue that the multiple derating of Macau gaming stocks is “overdone,” emphasizing that Macau earnings exhibit a resilience surpassing that of China’s discretionary spending. They remain optimistic about the sector’s future, highlighting that Macau’s Mass Gross Gaming Revenue (Mass GGR) reached an impressive 110% to 120% of the 2019 level during recent peak holidays. The spend per head during this period remained robust, even surpassing pre-COVID levels.
Factors Contributing to Resilience:
The analysts attribute this resilience, in part, to the addition of 17% more hotel rooms during the COVID period. The expanded accommodation capacity played a crucial role in sustaining and boosting Mass GGR, reflecting positively on the industry’s overall performance. The note predicts further growth, anticipating Mass GGR and industry EBITDA to increase by 25% and 34% in 2024, respectively.
Top Picks for Investors:
Morgan Stanley identifies MGM China and Wynn Macau as its top picks for investors. Despite experiencing significant derating in 2023—32% for MGM China and 25% for Wynn Macau—the investment bank sees strong valuation potential in these stocks. This endorsement is based on their analysis of the market and the belief that these stocks are poised for a rebound.
Morgan Stanley’s optimistic outlook on Macau’s gaming industry challenges prevailing skepticism among investors. The anticipated growth in Mass GGR and EBITDA for 2024 underscores the industry’s resilience, signaling a potential turnaround for Macau gaming stocks. Investors, it seems, may need to reassess their concerns and consider the untapped potential that Macau’s gaming sector continues to demonstrate.