Macau bounces into Year of the Rabbit
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Katrina Hamlin
HONG KONG, Jan 19 (Reuters Breakingviews) -Macau is bounding into the Year of the Rabbit. Valuations have leapt as operators march towards profitability. Yet balance sheets are bruised, and the pandemic will leave other scars too.
The early signs inspire animal spirits. Gross gaming revenue in the first half of this month was over $500 million, JPMorgan estimates, around 50% of pre-pandemic volumes. Meanwhile arrivals from China and Hong Kong reached roughly 40% of 2019 traffic as of Jan. 13, per Morgan Stanley. Hotel bookings for the Chinese New Year public holiday, which kicks off on Saturday, are strong, with some properties as busy as before the pandemic. That is remarkable given the mainland and Macau only relaxed restrictions less than two weeks ago. Stocks are worth around two-thirds of their 2019 prices, though at an average multiple of 13 times estimated EBITDA for 2024, per Refinitiv, the six listed casino operators’ enterprise values are close to the levels seen three years ago.
Investors seem sanguine about elevated leverage ratios too. SJM 0880.HK, for example, had a net debt of $3 billion by June 2022, nearly 6 times its pre-pandemic EBITDA, a stark contrast to its net cash position before the pandemic. Melco Resorts & Entertainment MLCO.O, MGM China 2282.HK, Sands China 1928.HK and Wynn Macau 1128.HK have seen their leverage ratios swell. Even at Galaxy Entertainment 0027.HK, which boasts by far the strongest balance sheet, net cash has dwindled by roughly 60% since 2019. Fortunately, operators mapped a decade of investment during licence renewals last year, minimising the chance of unexpected expenditures. None have substantial debt due in 2023, and the American groups can lean on deep-pocketed parents too.
Ultimately to rebalance borrowings, Macau needs returning visitors to spend as much – or more – as they did in the past. Investors will be watching to see if they shell out for shopping, food and other services, particularly as casino companies have committed to spend $13.5 billion on non-gaming activities over the next ten years. Some punters might have relatively modest budgets. The demise of the junkets, organisers of travel and credit for VIPs, means fewer high rollers. Slumping property prices, an economic slowdown, and unpredictable policy could undermine Chinese consumer confidence. But for now, the odds on a strong recovery are rapidly rising.
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CONTEXT NEWS
Macau casino operators’ gross gaming revenue in the first half of January was 4.3 billion pataca, around $500 million, JPMorgan estimated in a note published on Jan. 16.
Chinese and Hong Kong visitor arrivals in the gambling enclave returned to around 40% of pre-pandemic levels as of Jan. 13, according to Morgan Stanley. Researchers also noted hotel bookings looked strong for the upcoming Chinese New Year public holiday, Jan. 21 to Jan. 27.
Bouncing back: Macau casino stocks are rallying as visitors returnhttps://tmsnrt.rs/3WlBGJ2
Editing by Una Galani, Pranav Kiran and Thomas Shum
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