Analyst: MOP100b investment a ‘noose around the operators’ necks’

The reported MOP100 billion investment from casino-license bidders is considered unsurprising, despite the sector bleeding cash with no certainty on recovery.

With the embattled gaming sector suffering slumps – particularly this year where July recorded its worst gross gaming revenue in decades – the potential return over the next 10 years is unclear, particularly amid the industry-wide reshuffle.

Whether Macau’s golden years will return is also unclear. Macau has been following Beijing’s zero-Covid policy, which requires strict border restrictions and designated lockdowns when new cases arise.

“With no clear direction forward, it would be very difficult indeed for the operators to calculate the potential return and payback period on their investments,” Ben Lee, managing partner of IGamiX Management & Consulting, told the Times.

According to Lee, if the MOP100 billion investment occurs, the operators will be pressured to channel most of their investments into non-gaming activities, particularly operating expenses, rather than capital expenditure.

“If true, this means the government would prefer operators to spend their money creating jobs rather than building bricks and mortar. It may be good for the employment figures but in the long run, it could be a noose around the operators’ necks, as that cost will not be easily shed at the next downturn,” he added.

Back in June, the government required bidders to present detailed plans for developing foreign tourism markets and boosting their corporate social responsibility efforts, as well as their non-gaming investments.

Authorities have also clarified that they will not grant new land for gaming facilities, and any new developments should be made in their existing facilities.

JPMorgan analyst DS Kim considers the reported investment to be in line with expectations.

He noted the MOP100 billion investment is reasonable as the amount is one-third of the some MOP280 billion of the incumbent concessionaires’ investment during the pandemic.

“The reported investment commitment of USD1.9 billion to USD2.5 billion per operator – is very reasonable,” said DS Kim.

“This is bang in line with what we had expected and probably better than what the market feared – we view these as incrementally positive developments, supporting our view that the license-renewal process will be smooth with no big negative surprises,” he added.

The bidder that would be disadvantaged is Genting. It has no assets in the SAR, meaning it would have to acquire assets and commit to additional capital expenditure if it receives the concession.