Macau bounces into Year of the Rabbit

Sands China

19/01/2023 14:33

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Katrina Hamlin
       HONG KONG, Jan 19 (Reuters Breakingviews) - Macau is
bounding into the Year of the Rabbit. Valuations have leapt as
operators march towards profitability. Yet balance sheets are
bruised, and the pandemic will leave other scars too.
    The early signs inspire animal spirits. Gross gaming revenue
in the first half of this month was over $500 million, JPMorgan
estimates, around 50% of pre-pandemic volumes. Meanwhile
arrivals from China and Hong Kong reached roughly 40% of 2019
traffic as of Jan. 13, per Morgan Stanley. Hotel bookings for
the Chinese New Year public holiday, which kicks off on
Saturday, are strong, with some properties as busy as before the
pandemic. That is remarkable given the mainland and Macau only
relaxed restrictions less than two weeks ago. Stocks are worth
around two-thirds of their 2019 prices, though at an average
multiple of 13 times estimated EBITDA for 2024, per Refinitiv,
the six listed casino operators’ enterprise values are close to
the levels seen three years ago.
    Investors seem sanguine about elevated leverage ratios too.
SJM  0880.HK , for example, had a net debt of $3 billion by June
2022, nearly 6 times its pre-pandemic EBITDA, a stark contrast
to its net cash position before the pandemic. Melco Resorts &
Entertainment  MLCO.O , MGM China  2282.HK , Sands China
 1928.HK  and Wynn Macau  1128.HK  have seen their leverage
ratios swell. Even at Galaxy Entertainment  0027.HK , which
boasts by far the strongest balance sheet, net cash has dwindled
by roughly 60% since 2019. Fortunately, operators mapped a
decade of investment during licence renewals last year,
minimising the chance of unexpected expenditures. None have
substantial debt due in 2023, and the American groups can lean
on deep-pocketed parents too.
    Ultimately to rebalance borrowings, Macau needs returning
visitors to spend as much – or more – as they did in the past.
Investors will be watching to see if they shell out for
shopping, food and other services, particularly as casino
companies have committed to spend $13.5 billion on non-gaming
activities over the next ten years. Some punters might have
relatively modest budgets. The demise of the junkets, organisers
of travel and credit for VIPs, means fewer high rollers.
Slumping property prices, an economic slowdown, and
unpredictable policy could undermine Chinese consumer
confidence. But for now, the odds on a strong recovery are
rapidly rising.
    Follow @KatrinaHamlin on Twitter
    CONTEXT NEWS
    Macau casino operators’ gross gaming revenue in the first
half of January was 4.3 billion pataca, around $500 million,
JPMorgan estimated in a note published on Jan. 16.
    Chinese and Hong Kong visitor arrivals in the gambling
enclave returned to around 40% of pre-pandemic levels as of Jan.
13, according to Morgan Stanley. Researchers also noted hotel
bookings looked strong for the upcoming Chinese New Year public
holiday, Jan. 21 to Jan. 27.
    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Bouncing back: Macau casino stocks are rallying as visitors
return    https://tmsnrt.rs/3WlBGJ2
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 (Editing by Una Galani, Pranav Kiran and Thomas Shum)
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