CASINO

Macau’s 3-year casino EBITDA gain at risk, says JP Morgan Securities

TAGs: EBITDA, JPMorgan, Macau

For the first time in three years, Macau casinos could see a negative EBITDA (earnings before interest, taxes, depreciation and amortization) this quarter, as well as next quarter. This is the prediction of analysts with JP Morgan Securities (Asia Pacific) Ltd, the stockbroking division of JP Morgan. The analysts paint a dark picture, adding that there doesn’t appear to be any support for positive gains in the near term.

Macau's 3-year casino EBITDA gain at risk, says JP Morgan SecuritiesThis past Monday, DS Kim and Sean Zhuang, the JP Morgan analysts, explained, “For the first time in three years, we forecast industry EBITDA to print negative growth both quarter-on-quarter and year-on-year in the first quarter to second quarter of 2019, driven not only by anaemic GGR [gross gaming revenue] momentum (expected), but also by relatively soft margins (lesser-known).”

They added that the gaming industry margins in Macau have deteriorated over the past nine months, in spite of the fact that the market had experiences “higher top-line” earnings and improved revenue.

The analysts predict that there won’t be any near-term positive gains in the GGR, asserting that the growth comparison of March and April was “very tough given unfavourable calendar year-on-year.” They added, “The impact of rising operating expense could be felt more acutely this year, where top-line growth will likely slow materially to flat to negative (versus +14% in 2018).”

Several other factors have contributed to the analysts’ conclusions, as well. Spring dinners held by junket operators, typically a gauge of when VIP play volumes increase, remained flat in February compared to last March and the Labor Day holiday period starts later this year compared to last. It began on April 29 last year, falling on a Sunday, whereas this year it begins on May 1, which is a Wednesday.

Commenting on the first-quarter earnings for the Macau gaming industry, which are expected from late April, the analysts said that the earnings “could print negative growth (albeit small) for the first time in three years,” and added, “We sense that a short-term breather is coming for Macau stocks.”

For full-year 2019, the analysts reiterated their previous GGR forecast and expect it to come in at around -1%, with full growth recovering in 2020. They explained, “We keep our industry GGR assumptions unchanged at -1% for full-year 2019, with +5% growth in mass, versus – 7% decline in VIP. We assume GGR growth will recover in full-year, led by +9% in mass and +7% in VIP, amidst the opening of SJM’s Grand Lisboa Palace (and to a lesser degree Galaxy Macau Phase 3).”

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