Morgan Stanley lowers Macau gaming industry's EBITDA estimates for 2023 and 2024

Global investment bank Morgan Stanley has revised its EBITDA estimates for the Macau gaming industry in light of several sectoral challenges.

A recent note from Morgan Stanley analysts Praveen K Choudhary, Gareth Leung, Stephen W Grambling, and Nicholas P DeValeria explains that fully comparable industry EBITDA figures to those of 2019 would necessitate mass casino revenue reaching at least 120% of pre-pandemic levels, Macau Business Media reported.

Morgan Stanley's report identified various factors contributing to this challenge, including increased gaming taxes, a substantial decline in VIP segment revenue by over 75% compared to 2019 levels, and a slower recovery in the slot machine sector.

During the third quarter of 2023, contributions from slot machines, which represent the highest-margin gaming product, were only at 80% of pre-pandemic levels, the report said.

As a result of these dynamics, the investment bank has adjusted its industry EBITDA estimates for 2023 and 2024, reducing them by 5% and 2%, respectively.

Regarding stock performance, Macau stocks have remained in line with the Hang Seng Index and have even outperformed several Chinese consumer stocks, according to the brokerage.

In the short term, stock prices may experience a range-bound pattern, as September typically sees weaker demand following robust leisure and travel activity in July and August.

Nonetheless, the analysts emphasized their expectations for a robust October holiday season and the traditionally strong fourth quarter to drive revenue and EBITDA growth, potentially exceeding a quarter-on-quarter increase of 10%.

In the year-to-date, the gaming sector has managed to reduce its net debt by $1.7 billion (MOP13.7 billion). According to Morgan Stanley's estimate, it will take approximately three years to fully recover to pre-Covid net debt levels.

According to the latest report by the Gaming Inspection and Coordination Bureau (DICJ), Macau casinos' gross gaming revenue (GGR) increased by more than 686% in August from the previous year to MOP17.2 billion patacas ($2.17 billion). August's total was also up from the GGR posted in July, which stood at MOP16.7 billion ($2.1 billion).

The figures represent about 71% of pre-pandemic levels, driven by increased tourism levels during the summer vacation period. The city reported 2.8 million visitor arrivals in July, which has returned to 78% of pre-Covid levels, according to the latest official data.