Macau's casino comeback underwhelms

Sands China

23/02/2024 02:22

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Feb 23 (Reuters Breakingviews) - Tens of
thousands of Chinese tourists descended on Macau to ring in the
Year of the Dragon over the Spring Festival. But even as
arrivals near 2019 levels, casino stocks have yet to recover
their pre-Covid lustre.
    The recent holiday, extended to as much as 10 days by some
mainland employers, saw Macau return to something resembling its
pre-pandemic glory. The city welcomed roughly 170,000 visitors a
day from Feb. 10 to 17, just shy of the 2019 holiday average,
official data showed. Many Chinese vacationers eschewed pricey
overseas jaunts for destinations closer to home, and those who
travelled domestically spent less per trip this year. But
Macau’s visitors were readier to open their wallets. Analyst DS
Kim at JPMorgan estimated mass market gambling revenue was more
than a fifth higher than the 2019 festive season.
    That builds on an encouraging fourth quarter. Total money
wagered per visitor surpassed pre-pandemic numbers by 20%,
according to government statistics, helping Wynn Resorts
 WYNN.O , Las Vegas Sands  LVS.N  and MGM Resorts International
 MGM.N  reverse the losses reported a year earlier. MGM China
 2282.HK  increased adjusted earnings before interest, taxes,
depreciation, amortisation and rent-related costs to $262
million in the three months to December, more than 40% above the
same period in 2019. 
    
    However, the six listed casino operators’ enterprise values
are on average worth only around 10 times estimated EBITDA for
2024, per LSEG. That compares with multiples in the mid-teens
before Covid-19 struck. Share prices remain far off 2019 levels
for all but MGM, at odds with other domestic travel-focused
plays: booking specialists Trip.com  9961.HK  and Tongcheng
 0780.HK , Shanghai Jinjiang International Hotels and China Duty
Free  601888.SS  have all gained more than a third over the same
period.
    There are reasons for the disconnect. Macau may be a cheaper
and easier holiday spot than say, Seoul or Paris, but it is
still pricier than many mainland attractions. Any further
economic malaise could undermine willingness to splurge on
hotels and baccarat in the casino hub.
    Then there is debt. Casino operators took on substantial
leverage to avoid layoffs and to re-invest in facilities when
Covid controls kept customers away. Improved earnings will help
ease interest burdens, but smaller operators SJM  0880.HK  and
Melco Resorts and Entertainment  MLCO.O  will still hold net
debt equivalent to around five times EBITDA this year, estimates
Visible Alpha.
    Macau’s out of the cold, but it’s still not exactly hot.
    Follow @KatrinaHamlin on X
    
        
    CONTEXT NEWS
    The average daily number of visitor arrivals in Macau
reached 169,725 during the Chinese New Year holiday from Feb. 10
to 17, according to official data. The figure was 164% higher
than a year earlier and close to the 171,702 average recorded in
2019 during the same holiday.  

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Macau stocks are laggards in China's travel sector    https://reut.rs/3SS2JMi
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 (Editing by Robyn Mak and Nivedita Bhattacharjee)
 ((For previous columns by the author, Reuters customers can
click on  HAMLIN/ 
katrina.hamlin@thomsonreuters.com; Reuters Messaging:
katrina.hamlin.thomsonreuters.com@reuters.net))