Casino stocks on a decline, full recovery only by 2025: Moody’s
Macau casino stocks again declined yesterday, following losses of up to 8.7% the day prior.
Yesterday, Melco International led the decline with a 4.4% drop, followed by Wynn Macau, MGM China and SJM Holdings, with losses of 3.5%, 3.3% and 2.6%, respectively.
Galaxy recorded a loss of 1.7%.
According to JPMorgan, the bank fielded more than 30 queries on Wednesday from investors asking about the declines, in what was “one of the busier days in many years.”
“We have checked extensively with operators and our contacts across the industry, and the feedback has been consistent that demand is tracking very well, much better than expectations,” said DS Kim, JPMorgan’s head of Asia gambling.
“We thus attribute this correction to market flows and technical selling pressure,” he said.
On Wednesday, MGM China fell sharply at the open, with other casino stocks following suit.
“It didn’t help that there were a couple of block trades on MGM China, causing the market to speculate over idiosyncratic reasons for its underperformance such as potential forced selling by a fund or potential equity placement, among others,” he added.
The city recorded nearly half a million travelers during the May Golden Week, the majority of whom hailed from mainland China.
Casino to recover by 2025: Moodyís
The Macau casino market will only manage to reach 50% of 2019 gross gaming revenue (GGR) levels at most in 2023, but this rate of recovery is expected to improve and completely recover to pre-pandemic levels by 2025.
According to recent study by Moody’s Investors Service, “China’s reopening will boost Asian gaming revenue, but not to a full recovery from the pandemic impact.”
The authors further noted that they did not expect Asian gaming operators’ earnings to fully recover to pre-pandemic levels in 2023, as cited in a report issued by GGR Asia.
The authors explained that the VIP segment was expected to decline between 10% to 15%, whereas the “mass-market segment, which has significantly higher margins than VIP, will drive the overall increase in Macau’s GGR.”
This means that the pace of recovery in earnings will be faster than that of revenue for Macau, while Moody’s estimates that Macau’s mass GGR would improve to about 75% of 2019 level in 2023, and to 100% in 2024.
In fact, it is estimated that the debt levels of the Macau-focused operators may “decline gradually during 2023-24 as they start generating positive free cash flow,” and that it will take until 2025 before their leverage returns to levels that are more in-line with their current rating categories.
Staff Reporter
