Macau’s strong demand for hotels signals a promising October Golden Week: CLSA

Despite October’s Golden Week being nearly a month away, early indicators suggest strong visitation for Macau. A CLSA report highlights robust forward bookings, with 80 percent of tracked hotels already fully booked.

Remaining available hotels have raised their room rates, with the average price during Golden Week reaching $499 per night. Properties such as Galaxy and MGM China are particularly sought after, with six out of eight Galaxy properties and both MGM China hotels fully booked through early June.

The 2024 October Golden Week, also known as China’s National Day holiday, will span seven days from October 1st to 7th, with September 29th (Sunday) and October 12th (Saturday) designated as working days.

CLSA’s conclusions are supported by data from another online travel agency. The same investment memo notes intensified demand on Trip.com, with hotel bookings for October 5th-6th showing increased activity. This trend is accompanied by rising room rates, in sharp contrast to last year’s patterns.

Analysts Jeffrey Kiang and Leo Pan observe that as more rooms become available in the coming weeks, operators are adjusting prices to meet growing demand. Historically, room rates peak in August before stabilizing for Golden Week; current data show a moderation to $477, with leading pricing data at $499.

In addition to the sustained popularity of hotels like Galaxy and MGM China, CLSA points out that SJM’s Grand Lisboa has been fully booked every week since June 1st on a one-week leading basis.

Investor concerns overblown

CLSA argues that current investor concerns regarding Macau’s gaming sector are overstated. Despite the sector’s EV/EBITDA multiple hitting a decade-low, indicating heightened pessimism, analysts believe the sector remains resilient. 

The recent 6 percent month-on-month growth in Macau’s August gross gaming revenue (GGR) to MOP19.75 billion ($2.46 billion) signals a stabilization of the crackdown effects. This positive growth, despite the illicit money exchange crackdown, reflects a rebound in the sector’s performance.

Support for the sector’s recovery is also evident in recent financial actions by major gaming operators. ‘Dividend surprises by Galaxy and MGM China, as well as share buybacks at Melco, should offer support to share prices,’ the report notes. 

CLSA’s forecast suggests that the current dividend levels are sustainable, fully covered by the free cash flow generated by concessionaires. Historical trading data further supports a positive outlook, with Galaxy, MGM China, and Melco recording positive fourth-quarter performance in nine out of the past 13 years.

The stability in Macau’s gaming sector is underscored by the sector’s performance in the face of regulatory challenges. CLSA highlights that, despite a 3 percent quarter-on-quarter decline in 2Q24 EBITDA, the sector’s fundamentals remain strong. 

‘The actual growth in GGR signals to us that the crackdown in Macau should have stabilized,’ reflecting a steady business momentum into the third quarter. Concessionaires with robust balance sheets, such as Galaxy and MGM China, have shown confidence by increasing dividends, while Melco Resorts has engaged in share buybacks, further indicating a positive long-term outlook.

Lowered GGR forecast due to money exchange crackdown

The brokerage has revised its GGR forecast for 2024, reflecting a 2 percent decrease. This adjustment stems from anticipated impacts of the ongoing money exchange crackdown in the latter half of 2024 and a more subdued VIP-driven recovery expected in 2025 and beyond. 

The updated projection estimates that Macau’s GGR will grow 24.6 percent year-on-year to MOP228.2 billion ($28.3 billion) in 2024, down from earlier forecasts.

In conjunction with the lowered GGR forecast, CLSA has also adjusted its sector EBITDA estimates. The revised forecast indicates a 3-4 percent reduction in EBITDA expectations for 2024 and 2025, influenced by higher staff costs and a contraction in EBITDA margins. 

Despite this moderation, the sector is still expected to deliver a 21 percent year-on-year increase in EBITDA to $7.9 billion in 2024, reaching 83 percent of the 2019 level.

Additionally, adjustments to company-specific forecasts include anticipated impacts from the Londoner Macao Phase 2 and Cotai Arena revamp on Sands’ operations and updates to the revenue mix, such as the absence of VIP rolling chip volume at Parisian Macao in 2Q24.