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Macau gaming sector revenues are much burnt than expected especially when Macau was aiming a recovery path in mid-June 2022, resulting, “Macau gaming is still waiting for the players,” Jefferies notes in its latest coverage report on the sector.

Packaging the data pointers and numbers from the second quarter numbers as presented in the data sheets of Galaxy Entertainment Group, MELCO Resorts & Entertainment Ltd, and MGM China Holdings for the second quarter ended on Jun 30, Jefferies emphasizes on the fact that Macau Gaming, “still (has) bumps on the path to recovery.”  

“Macau gaming revenue has returned close to pre-outbreak levels in mid-June, but the next phase of the recovery depends on, as Galaxy noted, ‘immigration policies’ with Melco highlighting ‘bounce-back is never quick,” the report read.

The brokerage expects quarterly EBITDA losses to continue into 3Q22, but this is not a surprise as tourists are likely to remain low on quarantine fears.

Galaxy starting Phase 3 opening process would be a positive catalyst, but the company expects a 2023 opening.

Galaxy’s 2Q22 -HK$408 million Hold-adjusted EBITDA loss was smaller than Factset consensus of -HK$520 mn estimate with Galaxy Macau and StarWorld back into quarterly losses, the report read.

As the first half of 2022 ended on Jun 30, Galaxy’s HK$20.3 billion net cash HK$4.65 per share with second quarter operational expenditure and daily burn-rate improved to US$2.1 million per day and US$1.9 million per day, is seen as some sign of relief, as far as the books of the company are perceived, the brokerage read.

Galaxy Management reiterated their ‘gradual, managed and choppy’ near-term outlook but remain positive on longer-term pent-up demand that depends on immigration policy, as Phase 3 at Cotai is complete with opening possible in 90 days, but would largely depend on the recovery.

Whereas Melco Resorts’ 2Q22 US$30.1 million adjusted EBITDA loss was broadly in line with Factset consensus -US$35 mn estimate.

“Non-Macau properties was EBITDA positive but Macau properties loss-making,” Jefferies report stated.

At the end of the first half of 2022 as ended on Jun 30, Melco Resorts’ total liquidity was pegged at US$2.8 billion against US $7.3 billion total debt.

Jefferies notes that “(Melco Resorts’) Management expects a slow September, hope for Golden Week rebound,” the report read.

Forecasts

Jefferies expects recovery to be delayed till 2023 with visitations only rebounding towards the end of this year leading to 2022 gaming revenue at only 14 percent of pre-COVID level which was otherwise previously assumed at 31 percent.

The Brokerage report forecasts 2023 GGR (Gross Gambling Revenue) increasing 229% on a year-on-year basis at US$17 billion, but this is still only 46 percent of the pre-COVID level which otherwise was previously pegged at 60 percent of pre-COVID estimate.

For 2024, Jefferies report estimates GGR at 60 percent of the pre-COVID level pegged at MOP579 million per day.

Outlook

Macau gaming revenue has rebounded to the highest level since the first round of city-wide mass testing on 19 June, but this is only MOP79 million per day for the week ending 8/14.

However, the next phase of the rebound will depend on quarantine policies relaxing but fear of quarantine remains a major tourist deterrent.

In Macau, there are currently only 5 yellow code zones and 1 Red code Zones (lockdown zone) which compares to up to 31 Red Code Zones at the peak.

The current policy for Mainland China visitors involves negative NAT (Nucleic acid testing) within 48 hours for arrivals via the Zhuhai-Macao border and checkpoints or within 7 days via plane or vessel.

However, arrivals from the Macau government’s risk-classified areas must undergo 7-day medical observation, which is less than 20 Chinese regions.

Recommendations

Based on the above observations and a mix of long-term positive and short-term or mid-term obstacles, Jefferies has assigned “Buy” call for Galaxy Entertainment revising its target price for Galaxy Entertainment’s shares from HK$52 per share to HK$54 per share.

Whereas for Melco Crown Entertainment, the brokerage has tagged “Hold” status revising the new target price with a dent of $4.90 per share from $10.90 per share previously to $6 per share now.

Equally, the Brokerage has rated MGM China Holdings shares in “Hold” category with price revision from HK$5.20 per share to HK$4.60 per share, a correction of 60 cents.