With the majority of the rooms in the Macau SAR already in operation, incremental growth in operating expenses for gaming operators should be lower in the second half of this year, brokerage Morgan Stanley estimated.
Macau is set to undergo an expansion of its hotel room capacity, with the construction of nine hotels potentially adding up to 3,732 additional hotel rooms to the city’s inventory.
As of June end, there were a total of 43,000 hotel rooms available in the city, 15.7 per cent more than by the same month of last year, with occupancy rate currently at 78 per cent. However, the average room rate in the city has also almost doubled to $155.
‘By the end of 2Q23, the majority of the rooms were in operation. This suggests that incremental growth in operating expense will be much less in 3Q/4Q across the board, resulting in strong operating leverage. We expect 3Q GGR to be up 12 percent and EBITDA to be up 17 percent QoQ,’ analysts Praveen Choudhary and Gareth Leung indicate in a recent dispatch.
Going back in time
According to the Morgan Stanley analysts, all gaming concessionaires, except MGM China, have recovered their hold-adjusted Property EBITDA in the second quarter to about 65-70 percent of 2019 levels.
Sands China reported $530 million in hold-adjusted Property EBITDA, the largest amount of all concessionaires, and a 38 per cent quarter-to-quarter rise, followed by Galaxy Entertainment group with $355 million, a 31 percent sequential rise, and Wynn Macau with a 36 percent rise to $226 million.
The MS report was published before SJM Resorts revealed its financial report for the first half of this year. According to the cocnessionaire’s report, it registered a negative adjusted Property EBITDA of HK$292 million ($37.2 million) during this period.
Inquiries by MS also indicated that Macau’s gaming operators have not seen any impact from China’s economic slowdown in their operations so far.
“[Operators] claim that similar to luxury sales in China, the top 1 percent of mainland Chinese are traveling and spending on entertainment. This is why the recovery is premium led and grind mass has lagged,’ the report adds.
“Operators also noted July premium mass was above 2019 levels but grind mass was still below ~80 percent. Grind mass is negatively impacted by visitation (not all travel infrastructure is operating at capacity), slower package tour recovery and generally weaker China macro’
China’s economic activity data for July, including retail sales, industrial output and investment failed to match expectations, fuelling concern over a deeper, longer-lasting slowdown in growth.
Economists blame weak domestic demand for subdued investment appetite in the private sector and for China sliding into deflation in July