Morgan Stanley: Macau’s Q2 operating numbers to hit 5-year low

TAGs: China, Leonard Postrado, Macau, morgan stanley

The worst has yet to come in China’s ailing gaming hub.

Morgan Stanley: Macau’s Q2 operating numbers to hit 5-year lowGlobal investment bank Morgan Stanley is bracing itself for Macau casino’s second quarter operating results which they predicted to be “the worst quarter in the last five years.”

Even before casinos start reporting their second quarter earnings this month, analysts at Morgan Stanley it is already anticipating the worst for this former Portuguese colony.

“Weak second quarter revenue is well understood, but will result in negative earnings revisions for 2016,” Analysts Praveen Choudhary, Alex Poon, and Thomas Allen said in a research note, according to GGRAsia.

Morgan Stanley also noted that Macau’s MOP51.6 billion (US$6.5 billion) gross gaming revenue (GGR) in the second quarter “came in below consensus.” Macau’s GGR in the second quarter fell 8 percent quarter-on-quarter and 9 percent year-on-year.

“Thankfully, most of the downside came from VIP, which fell 12 percent quarter-on-quarter and 20 percent year-on-year. Yet, negative operating leverage would mean margin disappointment and negative earnings revisions. Mass revenue showed its first year-on-year increase, but on a sequential basis, the 4 percent quarter-on-quarter decline is the worst in the last four quarters,” the researchers pointed out.

The global financial institution is also pessimistic about Macau casino industry’s earnings before interest, taxation, depreciation and amortization (EBITDA), which they predicted to fall 6 percent quarter-on-quarter to US$1.3 billion, compared to the 3 percent sequential decline seen in the first quarter set against the fourth quarter 2015.

There is also a likelihood that the second-quarter industry property EBITDA will fall 7 percent quarter-on-quarter, and 4 percent year-on-year, to US$1.4 billion, according to Morgan Stanley.

On a positive note, Morgan Stanley noted that the average length of stay for Chinese overnight visitors saw a four percent, year-on-year improvement in the second quarter. It said the Chinese overnight visitors “remained high” at 2.2 nights.

Negative trends for the period included a 3-percent depreciation since April of China’s currency, the renminbi. The currency has experienced an 8-percent depreciation since August 2015, said the bank. Casino bets in Macau are mostly denominated in the Hong Kong dollar, a currency pegged against the U.S. dollar.


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