MS: Choppy recovery expected as mainland cases spike

Morgan Stanley is expecting the gaming industry’s near-term recovery to remain choppy due to the Covid-19 spikes in Guangdong and mainland China.

Despite resumption of e-visas for mainland citizens traveling to Macau, the number of visitations to the city has not been boosted in the wake of rising cases in China since the first of November.

Since earlier this month, the mainland has been tightening its restrictions as part of its targeted approach to its zero-Covid policies, while facing multiple outbreaks driven by fast-spreading omicron variants.

Just yesterday, the southern Chinese metropolis of Guangzhou locked down its largest district as it tries to contain a major Covid-19 outbreak.

In Shijiazhuang, a city in northern Hebei province, the city is testing all residents in six districts. In Beijing’s Haidian district, home to the city’s tech hub and top universities, authorities announced Sunday night that in-person classes were being canceled at elementary and secondary schools.

The brokerage cited in its report that Macau’s gaming industry recorded USD1.5 billion negative free cash flow to equity in the third quarter of this year.

Free cash flow to equity is a measure of how much cash is available to the equity shareholders of a company after all expenses, reinvestment, and debt are paid.

Due to the outbreak in the mainland, Morgan Stanley trimmed Macau’s 2022-24 gross gaming revenue (GGR) by 15%/3%/13%, respectively, to 15%/43%/70% of 2019’s levels.

Last month, Macau saw its GGR rise 31.6% month-to-month to nearly MOP3.90 billion, albeit from a low base as last month’s receipts stood at MOP2.96 billion, which was a plunge of nearly 50% year-on-year.

Casino-license bidders are reportedly pledging to invest MOP100 billion in new proposals, despite the sector bleeding cash with no certainty on recovery.

With the embattled gaming sector suffering slumps, the potential return over the next 10 years is unclear, particularly amid the industry-wide reshuffle.

Casino shares tumble

Shares of casino operators plunged yesterday amid the spike of Covid cases.

Sands China fell 7.8% and Galaxy Entertainment Group declined 5.8%.

US-listed casino stocks related to Macau dropped in premarket trading as well. 

Melco Resorts & Entertainment fell 4%, while Wynn Resorts and Las Vegas Sands each lost 3%.