Macau Won’t Have V-Shaped Recovery, But Rebound Gradually Gains Momentum

Posted on: December 15, 2020, 10:11h. 

Last updated on: December 15, 2020, 11:15h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Macau’s gaming industry is on the mend following months of punishment at the hands of the coronavirus pandemic. But analysts caution the recovery isn’t likely to be as swift as some investors are hoping.

Macau rebound
Tourists snap pictures outside Parisian Macau. An analyst sees a gradual recovery building. (Image: Reuters)

At the height of China’s bout with COVID-19, integrated resorts in the world’s largest casino center were shuttered for 15 days in February. This touched off a multi-month string of gross gaming revenue (GGR) declines of 90 percent or more, a streak that only recently ended.

Pointing to signs of life within China’s domestic tourism market, CFRA analyst Aaron Ho says Macau is gradually rebounding. However, a V-shaped recovery — in this case, a rapid return to pre-pandemic GGR and visitation figures — is unlikely. That’s because Beijing continues clamping down on cross-border money transfers. This policy is crimping the special administrative region’s (SAR) VIP junket business.

Gaming industry executives previously said gamblers shouldn’t fret about that policy because Macau is a Chinese territory and money moved from the mainland to casino accounts in the SAR isn’t considered an international transfer.

Loving Las Vegas Sands

A major point in favor of Macau’s recovery effort is that the SAR had just 46 documented cases of COVID-19 and no fatalities, notes CFRA’s Ho.

Amid still sluggish VIP trends, the analyst sees mass-market players doing the heavy lifting for Macau operators next year. As a result, he’s bullish on Las Vegas Sands (NYSE:LVS).

“We think the gradual shift in traffic from VIPs to mass visitors could be a key revenue driver in 2021, helped by improved connectivity from the Hong Kong-Zhuhai-Macau Bridge and supportive policies from the Greater Bay Area,” said Ho.

LVS owns five integrated resorts in Macau and is less dependent on higher-end players than some of its rivals. Rather, the operator derives the bulk of its revenue and earnings, before interest, taxes, depreciation and amortization (EBITDA) in the SAR from mass and premium mass gamblers. That makes it one of Wall Street’s preferred gaming equities for 2021.

Tepid on Wynn Resorts

Ho is lukewarm on Wynn Resorts (NASDAQ:WYNN), citing that operator’s exposure to VIP traffic. However, the analyst sees some positives with the operator of two Macau venues.

“Nevertheless, Wynn Macau guided that the company broke even in EBITDA for October following an improvement in GGR, which, in our view, was helped by its lower operational cost burden on smaller asset size,” said Ho. “Hence, we see Wynn Macau as having higher flexibility to adapt to Macau’s changing economic direction.”

On Monday, Deutsche Bank analysts pointed out that Wynn’s October and November Macau GGR was 31 percent of that in the fourth quarter of 2019. The market-wide percentage in the SAR was 28.4 percent.

The Wynn Palace owner also said its daily operating expenses are down to $2.3 million from $3 million a year earlier, and that it’s selling an unspecified amount of notes to bolster cash reserves.