Macau’s industry-wide EBITDA is tipped to have grown by 6% quarter-on-quarter to US$1.95 billion in the three months to 31 December 2023, with SJM Resorts and Wynn Macau making the greatest sequential gains, according to investment bank Citi.
In a Sunday note ahead of the upcoming 4Q23 earnings season, analysts George Choi and Ryan Cheung said they expect Macau’s two larger operators, Galaxy Entertainment Group and Sands China, to have lost market share during the quarter as the small-to-mid sized concessionaires making up ground.
In particular they pointed to SJM and Wynn, with SJM’s rise to see its Cotai integrated resort Grand Lisboa Palace to finally break even while Wynn to gain ground on the normalization of mass hold rates.
“We expect them to be the two casino operators with the greatest quarter on quarter EBITDA improvements,” Citi said.
The analysts added, “Even though we believe most of the market share changes in 4Q were driven by luck, the short-term market share gains will likely translate into more resilient EBITDA margins for MGM China, Melco, Wynn Macau and SJM which should in turn translate into near term share price outperformance.”
Despite the changing market share dynamics during the quarter, Citi said it anticipates industry EBITDA margin remaining stable quarter-on-quarter at 28.5% even with increasing player acquisition and reinvestment costs.
“Macau is a six player oligopoly [and] reducing one’s spending on player reinvestments is no different from gifting market share to its competitors,” they observed. “That said, the six operators learned their lessons from the junket commission price war back in 2008-09. This is why even though player reinvestment costs have been increasing, we do not see any out of proportion irrational market buying behaviour by any operators.
“We anticipate industry EBITDA margin in 4Q23 to remain largely unchanged quarter-on-quarter at around 28.5%. At an individual operator level, we believe that quarter-on-quarter volatility in EBITDA margins has more to do with the operators’ market share change for the quarter rather than the amount spent on player reinvestments.”
The analysts have also increased their Target Price for shares of SJM, Wynn, MGM China and Melco, but longer-term maintain Galaxy and Sands as their top industry picks given their extensive offerings and proven track records.
