At least some Macau gaming operators can turn EBITDA positive in 4Q22, according to investment bank JP Morgan, buoyed by an expected surge in visitation from the impending resumption of eVisas and package tours for mainland Chinese traveling to Macau.
Chief Executive Ho Iat Seng announced on Saturday that both eVisas and package tours – which have been suspended since January 2020 – would be reinstated in November following discussions with China’s central government.
This, according to JP Morgan analyst DS Kim, should have an immediate impact with mass GGR tipped to recover to 25% to 30% of pre-COVID levels in 4Q22 and then ramping up sequentially to around 85% by the end of 2023.
It should also be enough to see at least some concessionaires return to profitability before 2022 is out.
“Most operators can turn EBITDA positive when mass GGR hits around 30% to 35% of pre-COVID levels, indicating some companies can start to print positive profits from 4Q,” Kim said, highlighting SJM Resorts as the exception due to new casino operating expenses at Grand Lisboa Palace.
“FCF (free cash flow) break-even can be achieved at around 50% to 60% of mass GGR recovery for most operators, except Galaxy (which can print positive FCF at sub-30% recovery thanks to net cash) and SJM (which probably needs near-full recovery to recover opex from GLP and satellite casinos).
“We thus expect all operators (again, except SJM) can be FCF positive by 2Q23, so we probably don’t need to worry about ‘liquidity runway’ anymore.”
Kim describes the Chief executive’s weekend announcement as the most significant policy easing since the Macau-China border was reopened more than two years ago. While the Individual Visit Scheme (IVS) – which accounted for around 50% of all pre-COVID Chinese visitation to Macau – was also resumed in September 2020, the vast majority of IVS travellers have traditionally used eVisas so without them, visitation has remained sluggish. Package tours also accounted for around 25% of 2019 visitation, albeit with a lower GGR contribution.
“The timing/magnitude of easing is earlier/better than expected, adding conviction to our bullish stance on Macau gaming,” Kim said.
“Although it’s tough to quantify the immediate benefit, we believe the resumption of eVisa and group tours should alleviate friction for a Macau trip, as well as signal to many that it’s OK to visit Macau, in turn boosting demand into the year-end holidays and 2023.
“Finally, we feel we can talk about a return to normalcy.”
