Morgan Stanley dips Macau 2021 GGR outlook on weaker VIP

Morgan Stanley dips Macau 2021 GGR outlook on weaker VIP

Banking group Morgan Stanley has reduced by about 10 percent its 2021 estimate for Macau casino gross gaming revenue (GGR), to the equivalent of nearly US$23.7 billion.

It adds that its new estimate represents about 65 percent of Macau’s 2019 GGR level, but is below investor consensus at 70 percent.

Morgan Stanley cited as key factor in its modified forecast a “weaker VIP” gambling segment.

“In 2021, we expect VIP revenue to only reach 40 percent of 2019 level, and even 2022 might not reach 2019 level,” wrote analysts Praveen Choudhary, Gareth Leung and Thomas Allen.

Morgan Stanley anticipates VIP and mass-market gambling revenue will be respectively about 40 percent and 80 percent of the 2019 level.

In full-year 2019, VIP baccarat – traditionally the game of choice for Macau high rollers – generated MOP135.23 billion (US$16.9 billion) by itself, accounting for about 46.2 percent of the aggregate GGR that year, according to data from the city’s regulator, the Gaming Inspection and Coordination Bureau, also known as DICJ.

“VIP will continue to drag overall GGR down. While macro[economic] indicators,” including total social financing in China, “are showing upticks… junkets are leaving the field,” wrote Morgan Stanley.

“Both Suncity and Tak Chun are taking stakes in casinos and diversifying away from pure junket business,” added the institution, referring to diversification by two of Macau’s leading junket brands.

China’s recently-approved new criminal penalties for the organising of mainland Chinese for the purpose of “overseas” gambling, take effect on March 1.

They could cover anyone organising trips for gambling in Macau – such as via junkets – as well as trips to foreign countries, a Macau gaming scholar and a lawyer based in Guangdong on the mainland have told GGRAsia.

Morgan Stanley said in its Thursday report, that it new 2021 forecast for Macau casino operators’ corporate earnings before interest, taxation, depreciation and amortisation (EBITDA), was down 10.3 percent. It now expected just under US$6.43 billion, versus US$7.16 billion previously.

The banking group further observed that cost-cutting during the pandemic was likely to produce ongoing benefits for Macau operators in 2021.

“In third-quarter 2020, operating expenses (excluding taxes, VIP rebates and one-off bonus reversal) were down 39 percent year-on-year for the industry,” wrote the analysts.

“While some of the cost should come back with volume, we expect the new fixed-cost run rate to be lower than 2019, and with mix improvement,” was likely to be “driving EBITDA margin higher,” added the Morgan Stanley team. Such improvement led the institution to increase its 2022 forecast for corporate EBITDA by 4 percent, to nearly US$9.97 billion.

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