Macau’s casino operators will endure their first quarterly EBITDA fall in three years when 1Q19 results are revealed over the coming weeks, according to analysts, despite enjoying “unusually high luck” in the VIP segment.
In a preview note ahead of the first of 1Q19’s earnings results this week, JP Morgan’s DS Kim and Christopher Tang predicted EBITDA would turn negative for the period, down by around 3% year-on-year and sequentially, with a better percentage of mass revenue offset by a “gradual yet clear OPEX hike” via salary increases and staff bonuses.
“Moreover, though it’s tough to quantify at this point, we suspect EBITDA momentum could be worse than reported, if we normalize the VIP luck factor,” they added.
While mass GGR is tipped to rise by around 10% year-on-year to a record high, Kim and Tang suggest that VIP rolling chip may have declined by around 20% – a two-year low – which would be considerably down on the 4Q18 trend which saw VIP decline by just 2% year-on-year.
Although still down by around 11% year-on-year, the analysts said VIP GGR for the period received a boost from playing lucky, leaving a few questions to be answered.
“We think it’s crucial to look at luck/hold-adjusted EBITDA this quarter, as most junkets and some premium mass lounges held unusually high (vs historical trends) for no apparent reason” they said.
“Is there any structural change? Most industry participants say ‘nah, we just had really good luck,’ but we’re keen to hear operators’ thoughts.”
JP Morgan pointed to MGM as the obvious choice to produce the most positive numbers following the February 2018 opening of MGM Cotai, with predicted EBITDA growth of 17% year-on-year as well as improved share in both mass and VIP.
