Macau’s casino operators should reach break-even EBITDA in 3Q20, according to Morgan Stanley analysts, thanks to lower daily operating expenses and the easing of border restrictions with Guangdong Province.
In a Tuesday note, analysts Praveen Choudhary, Gareth Leung and Thomas Allen estimate daily EBITDA will creep into the black to the tune of US$160 million in the current quarter, similar to 1Q20 levels and a significant improvement over the expected combined Macau industry EBITDA loss of US$1.07 billion for 2Q20.
“Industry EBITDA should break even in 3Q20, even though GGR is lower and revenue mix is weaker (VIP better than mass),” Morgan Stanley said.
“This is due to cost rationalization as overall OpEx dropped by 18% quarter-on-quarter in 1Q and we expect it to have declined by another 5% quarter-on-quarter in 2Q.
“3Q EBITDA could be lower than 1Q despite cost reduction, mainly due to less favorable revenue mix as mass recovers more slowly than VIP.”
While the analysts named Galaxy Entertainment Group and Sands China as the only the companies likely to generate greater EBITDA in Q3 than in Q1, they added industry-wide OpEx should continue to decrease, by between 8% and 14%, year-on-year through the final two quarters of 2020, “which should allow the companies to get back to pre-COVID EBITDA levels even when GGR is not there yet.”
That would include an improvement from EBITDA of US$160 million in 3Q20, representing a 93% year-on-year decline, to EBITDA of US$1.4 billion in 4Q20, down 42% year-on-year.
Gross gaming revenue among Macau’s operators is estimated to fall by 59% year-on-year in 3Q20 to MOP$29 billion (US$3.63 billion) and by 23% in 4Q20 to MOP$55.65 billion (US$6.97 billion) as travel easing continues.
