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Macau Gaming Sector earning predicted to return to 2019 levels by 4th quarter 2021

Macau casino-sector earnings before interest, taxation, depreciation and amortisation (EBITDA) could return to 2019 levels “as soon as” the fourth quarter of this year, “partly helped by the capacity expansion” linked either to new-to-market or enlarged or revamped Cotai projects due to launch this year, suggests China International Capital Corp (CICC) in a Monday report.

“Our expectation is based on mass- segment recovery leading to a GGR [gross gaming revenue] split gravitating to mass gaming driving higher EBITDA margin,” as well as “permanent cost savings by gaming operators,” following pandemic-led cuts initially, wrote CICC analysts Shengyong Goh, Kai Qian, Liwei Hou and Jiayu Wang.

The market was likely to benefit this year from “capacity expansion through the Londoner [Macao], [Grand] Lisboa Palace, and Galaxy [Macau] Phase 3,” added the CICC team.

They were referring to Cotai schemes promoted by, respectively, Sands China Ltd, SJM Holdings Ltd, and Galaxy Entertainment Group Ltd.

The Chinese financial institution estimated Macau’s 2020 gaming industry EBITDA to be negative by US$1.74 billion; but suggested EBITDA could turn positive to the tune of US$4.45 billion for 2021; and US$9.66 billion for 2022.

Macau operators’ fourth-quarter earnings season starts on Wednesday (January 27) with the disclosure of Las Vegas Sands Corp, parent of Sands China.

That group’s Londoner Macao – a Cotai resort revamped and rebranded from Sands Cotai Central – is due to have a formal first-phase launch on February 8.

In October it emerged that Sands China had launched across the road, the Four Seasons Hotel Macao’s new all-suite tower, with 289 rooms.

CICC suggested in its Monday report, that SJM Holdings’ HKD39-billion (US$5-billion) Grand Lisboa Palace – that firm’s first foray into the Cotai resort market – could launch “by phases” starting in the “first half of 2021”, with 900 hotel rooms as well as a casino.

The analysts noted that Grand Lisboa Palace should ultimately house in total 2,000 hotel rooms.

The CICC team also expected Galaxy Entertainment to see completed a local-government inspection of Phase 3, located at its Galaxy Macau flagship (pictured in a file photo) by the first half of this year, with the facility launched in “third quarter 2021” in time for the so-called ‘Autumn Golden Week’ holiday period in China that encompasses the country’s National Day on October 1.

In November, other analysts had mentioned a likely second-half 2021 launch for Phase 3.

CICC observed that Galaxy Phase 3 would have non-gaming elements, including: a 500,000-square-foot (46,452-sq-metre), 16,000-seat arena; a Galaxy International Convention Center with 400,000 sq ft of meetings, incentives, conferences and exhibitions (MICE) space; a 650-seat auditorium; and two hotels with an aggregate of 1,500 rooms.

New hotel stock

“Overall, we estimate Macau [market-wide] will net add about up to 2,800 hotel rooms in 2021, or a 7.5-percent increase on its existing 37,293-room inventory,” said the CICC team.

As of November 30, Macau’s available hotel room inventory was down 7.8 percent year-on-year, at circa 35,000, according to the city’s Statistics and Census Service, due to some local hotels being “used for medical observation”.

That was a reference to those people permitted to enter Macau from places other than most locations in mainland China, being required to undergo a period of quarantine in one among a number of hotels earmarked for the purpose.

The CICC analysts noted however, that in their view, an increase in new-room stock during 2021, could bring in a greater number of overnight visitors, which it thought should help spur growth of mass-market play in Macau.

The CICC analysts flagged that it make take until “2023/2024” for Macau’s annual GGR to return to the 2019 levels. But the team nevertheless expressed confidence in Macau gaming’s longer-term prospects.

In its Monday report, CICC estimated the city’s 2021 GGR would grow by “168 percent year-on-year”, “led by gradual recovery in the mass segment (up by 228 percent year-on-year) and VIP segment (up by 55 percent year-on-year)”. The analysts also expected that Macau’s mass segment could account for up to 80 percent of Macau’s total GGR this year.