Macau’s casino industry performance in the first quarter of 2024 is under scrutiny by investment analysts, with expectations suggesting a nuanced picture of recovery and operational strategies. Morgan Stanley, in its recent report, provides insights into the expected EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and market dynamics affecting major operators like Las Vegas Sands, MGM China, Wynn Macau, Melco Resorts, SJM, Sands China, and Galaxy Entertainment.
Key Points from Morgan Stanley’s Report
The investment bank’s analysis indicates a 6% quarter-on-quarter growth in Gross Gaming Revenue (GGR) for Macau in 1Q24, but cautions that this might not fully translate into EBITDA growth due to continued deleveraging efforts among operators. Specifically, the EBITDA is estimated to be around 5% higher quarter-on-quarter at US$1.9 billion, representing 81% of 1Q19 levels. This suggests a cautious approach by operators in balancing revenue growth with strategic financial management.
Deleveraging and Operational Focus
Morgan Stanley’s analysts highlight the continued emphasis on deleveraging post-pandemic. Some operators are prioritizing reducing debt burdens, impacting short-term operating leverage. This is compounded by wage increases and increased promotional activities aimed at attracting customers. Consequently, while GGR is rising, operating margins and leverage benefits are expected to be more modest.
Market Share Dynamics and Operator Performance
The report identifies key trends to monitor during the upcoming earnings season, including gambler spending power, operational expenses, reinvestment costs, and dividend resumptions. Notably, Sands, Melco, and SJM have not declared dividends since the pandemic, raising questions about potential changes in dividend policies. Analysts are particularly interested in relative EBITDA performance and mass market share gains, highlighting preferences for certain operators based on growth expectations and market positioning.
Operator-Specific Performance
Morgan Stanley’s analysis offers nuanced views on individual operators. They suggest a preference for MGM China and Wynn Macau due to anticipated market share gains and EBITDA growth. Conversely, Sands and Galaxy are viewed with caution for 1Q24 earnings due to expected market share losses and cost pressures. The report also notes potential improvements in market share for Melco Resorts but acknowledges margin challenges due to higher costs.
Forward-Looking Strategies
Lastly, the report emphasizes operators’ strategic goals for 2024, such as debt reduction (highlighted by Melco Resorts) and market expansion (as indicated by SJM’s Grand Lisboa Palace). These factors are expected to influence market dynamics and investor sentiment moving forward.
Morgan Stanley’s insights shed light on the multifaceted landscape of Macau’s casino industry in 1Q24. While revenue growth is positive, the focus remains on financial discipline and strategic positioning amid evolving market conditions. Understanding these dynamics is crucial for investors and stakeholders navigating the complexities of the gaming sector in Macau.