Casinos ‘running low’ on cash: Morgan Stanley

Gaming operators in the city are “running low” on cash, reporting USD800 million (MOP6.4 billion) in losses per quarter, according to a report issued by Morgan Stanley.

“Without a meaningful uptick in visitation (easing travel policies) and mass revenue, companies (excluding Galaxy) will remain free cash flow negative, driving net debt higher and book value lower,” said the note by the investment banking firm.

Furthermore, other casinos are losing USD250 (MOP2 billion) million per quarter in cash flow leakage.

With such figures, Morgan Stanley has reduced its estimates for 2022 and 2023 as the conditions extend on like a “long dry highway with no end in sight.”

Previously, the firm forecast a total of USD18.5 billion (MOP121.4 billion) in gross gaming revenue for 2022. 

However, with the losses the casinos are experiencing amid the pandemic and quarantine measures for arrivals from high-risk regions in mainland China, Morgan Stanley is now expecting revenues to tumble to USD11 billion (MOP88 billion), far below the market consensus.

The firm further stressed that, in the long term, it remains confident in the sector, however, looking at the casino stocks chart, survival is key.

On March 15, gaming operators saw their shares plunge by up to 13%, following the tightened quarantine requirements for some travelers from the mainland, amid the new surge of Covid-19 cases in China.

Further, Morgan Stanley forecasts that Melco Resorts & Entertainment and Wynn Resorts could run for five to six quarters, while Sands China and MGM China run for about three to four quarters.

Galaxy Entertainment Group, meanwhile, remains free cash flow positive.

As reported by the Times yesterday, the anticipated revival of the gaming sector is again receding into the distance, with no recovery expected for at least six months.

Gaming insiders have admitted that the casino sector’s financial situation is set to worsen in the next six months, especially given that casinos have paid tens of millions to renew their concessions.

The insiders expressed concerns about possible additional financial pressure coming from the closure of at least seven satellite casinos in ZAPE and Taipa, as operators would have to pay the salaries of dealers in the closing casinos.