Investment bank JP Morgan says it expects Macau’s casino sector to record industry-wide EBITDA of US$1.7 billion for the three months to 30 June 2023, driven by all-time high margins.
In the wake of another strong GGR result in June, which saw the Gaming Inspection and Coordination Bureau (DICJ) report gross gaming revenues of MOP$15.21 billion (US$1.88 billion), JP Morgan analysts DS Kim and Mufan Shi said their EBITDA forecast represents a 47% improvement over the March 2023 quarter and would see profitability reach 73% of 2019 levels. However, most appealing is their expectation of EBITDA margins hitting 26% versus a historical peak of 24%, and potentially climbing even higher to 30% by 2025 thanks to “mix improvement and cost savings.”
“[The June 2023 quarter] also marks the first quarter in 3+ years that every operator (including SJM) generated handsome FCFs (free cash flows), with industry EBITDA (annualized at US$7 billion) more than 2x the burden from interest (around US$1.5 billion per annum) and capex (US$1.5 billion to US$2 billion per annum),“ they said
Kim and Shi have also upped their earnings estimates for the Macau gaming industry yet again, adding that current share price valuations are yet to catch up to Macau’s growth trajectory.
“We view Macau as one of very few sectors in China comfortably gliding through an estimate up-cycle against macro headwinds, and this ‘scarcity value’ doesn’t appear to be appreciated (at all) at the current price of 9x EV/EBITDA, which in fact is near the trough levels,” they said.
“This makes us very comfortable – even under a reasonable bear-case on macro – to look for hefty >50% potential upside … and we believe 2Q earnings should help drive this with all-time high margins and encouraging commentary.”
