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Consumer Cyclicals
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Market Cap £3.50bn
Enterprise Value £3.62bn
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Position in Universe 78th / 1831

RPT-FOCUS-Pandemic-hit Macau casinos look to play the long game with cash pile

Fri 1st May, 2020 1:00am
(Repeats story from Thursday)
    By Farah Master and Scott Murdoch
    HONG KONG, April 30 (Reuters) - Light on debt and cash rich,
Macau's Galaxy Entertainment  0027.HK  is bleeding $3 million
daily in operating cost as the coronavirus crisis upends its
casino business. 
   Such a jolt could sink most companies - a risk not taken
lightly by global policymakers who have delivered various
measures over the past two months to help cushion corporate
losses.  
    Yet Galaxy and many of its counterparts in the world's
biggest gambling hub have enough cash on hand to ride out the
storm and, surprisingly, even survive on zero revenue for
several months to a few years. 
   Having enjoyed robust earnings growth in recent years, thanks
to insatiable gaming demand from mainland Chinese, the balance
sheets of Macau's casino operators stand tall over those in Las
Vegas, which are saddled with much higher debt.  
    A Reuters calculation shows the Macau casino operators came
into 2020 with a cumulative cash position of just over $12
billion, providing a solid buffer to tide over the lean times.
    Galaxy's  0027.HK  cash pile is a case in point.  
    Its policy of not dishing out regular dividends has seen it
amass a war chest of around $5.7 billion over the past several
years - allowing it to burn through $3 million daily on
operating cost and weather the coronavirus for a lengthy period
on zero revenue.
    The survival of Macau’s gambling industry is crucial for the
Chinese-ruled territory where the sector employs about three
quarters of its 600,000 population, either directly or
indirectly. 
    "It’s very difficult to predict how this is going to work
out,” Robert Drake, Galaxy’s chief financial officer said at its
full-year earnings briefing at the end of February during the
height of the virus outbreak. 
    The coronavirus is also expected to delay a pipeline of
multi-billion-dollar projects in Macau that were due to start
this year.    
    While Sands China  1928.HK , MGM China  2282.HK , Melco
Resorts  MLCO.O  and Wynn Macau  1128.HK  have lower buffers
than Galaxy, they can still go without revenues for around 6-24
months, say analysts. All players can survive a minimum of half
a year without having to tap debt financing, but anything longer
could spell trouble. 
   MGM, Galaxy, Melco, Wynn and SJM declined a Reuters request
for comment.
    
   MARATHON, NOT SPRINT
   To curtail the coronavirus, Macau barred all visitors from
the mainland, neighbouring Hong Kong and Taiwan who had
travelled overseas in the previous 14 days. Visitors from the
greater China region make up more than 90 percent of its
tourists.
    The numbers trickling in so far are telling.
    Although Macau’s casinos have reopened after a two-week
suspension in February, revenues have plummeted between 80%-90%,
hit by travel curbs and health regulations. 
    April’s gambling revenues, to be released on Friday, is
expected to show a plunge of 95% year on year. 
    Daily visitors to Macau number around 200 versus over
100,000 a year earlier
    "It's a marathon, not a sprint, and we can see that there's
been a gradual improvement in mainland China, that hopefully, 
will trickle down into Macau," Galaxy's Drake said. 
    Fortunately, a solid period of growth for Macau's six casino
operators, which have raked in over $200 billion in gaming
revenues since 2014, has strengthened the industry's capacity to
deal with the pandemic's far reaching impact. 
    Their average debt to equity ratio at 53% also compares
favourably to the near 87% ratio for the Las Vegas players,
according to Thomson Reuters Eikon. 
    Sands, which suspended its dividend payment due to the
pandemic's impact, is bleeding nearly $4 million a day in
operating costs. However, with cash reserves of around $1.4
billion, it can keep going for two years without any revenues,
said DS Kim, an analyst at J.P. Morgan in Hong Kong. 
    Sands Chairman Sheldon Adelson said any resumption in
dividend payment would depend on income going forward. 
    “I assure you I have not said yay dividends and yay buybacks
for the last time,” Adelson said during an investor call
following first-quarter results on April 22.
    Sands reported a $166 million quarterly net loss, with
others due to announce results in the coming weeks. Analysts
expect to see only a gradual recovery in the second half once
travel restrictions are loosened.
    If casinos did move to tap the capital markets, bankers
caution it would be a tough sell.
    “All of the deals that we have seen in Asia have been in
sectors where there has been visibility on what the future will
look like, we don’t even know when people are going to be able
to go to Macau again.”

($1 = 7.9750 patacas)


 (Writing by Farah Master
Editing by Shri Navaratnam)
 ((farah.master@thomsonreuters.com; +852 28431631 ;))
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