Analysts expect ‘near-zero’ revenue while casino stocks plunge following outbreak
Macau’s casino stocks saw a plunge yesterday after the government’s announcement of a new wave of Covid-19 cases dealt a fresh blow to the crippled gaming sector.
The outbreak that initially numbered 12 led to another city-wide mass testing, which increased the case tally up to 36.
This comes after eight months of the city recording zero Covid-19 cases among the local community.
When the Hong Kong stock exchange market closed yesterday, Wynn Macau led the plunge, which recorded a 3.38% drop, followed by Melco Resorts Entertainment with a decline of 3.26% and SJM Holdings with 3.16%.
MGM China and Sands China shadowed with a decline of 2.24% and 2.15% respectively, while Galaxy Entertainment Group dropped slightly by 0.98%.
The gaming sector has long been suffering from a slump in revenues as casinos burn millions of dollars of cash each day.
The past two months, the tumultuous industry suffered a revenue slump, recording the worst losses in 18 months in April, when gross gaming revenue (GGR) only reached MOP2.68 billion as Macau endured stricter border restrictions whenever fresh outbreaks arose in neighboring regions.
This was followed in May when GGR dropped to MOP3.34 billion, the second worse figure since September 2020, the month when travel resumed for visitors from mainland China.
For JPMorgan Chase & Co analysts including DS Kim, Macau’s GGR may hit “near-zero levels” for at least a few weeks until the situation is under control.
With this scenario likely, the brokerage expects that SJM and Sands China will only have enough liquidity to survive until March next year.
Only Galaxy was expected to have enough cash for the next five years, according to the analysts, while other operators will have at most two years of liquidity.
The “unprecedented” Covid-19 outbreak, as what the government calls, has led to suspended operations of the majority of government offices as well as temporary closures of shops and schools.
Dining in at restaurants is also being discouraged.
Credit Suisse analysts, meanwhile, expect that the government could order a temporary suspension of casinos if the outbreak gets worse.
If this happens, this will become the second closure of casinos, after the first closure of 15 days, which occurred during the peak of the Covid-19 pandemic in February 2020.
“Players may choose not to come in the near term fearing they may not be able to return to their hometown if additional cases are discovered,” said analyst Kenneth Fong.
The Covid-19 outbreak is already damaging the tourism sector as those arriving in Zhuhai from Macau are required to undergo a “7+7” quarantine.
