UBS has reaffirmed its positive outlook on the Macau gaming industry, raising 2024 mass estimates to 113 percent of 2019 levels, compared to the previous estimate of 110 percent.
In the latest investment memo, UBS explains that the revision of the mass gross gaming revenue (GGR) is due to better-than-expected revenue quarter-to-date. However, the non-gaming revenue estimate was lowered by about 4 percent, now expected to be at 114 percent of the 2019 level.
In this context, net-net, the brokerage maintains the 2024 sector EBITDA estimate at 89 percent of the 2019 level, with an unchanged operational expenses assumption at 105 percent of the 2019 level.
Generally speaking, UBS indicates that mass GGR momentum continued in 2Q24 after exceeding consensus expectations in the previous quarter. This reflects ‘continued demand strength.’
‘The recent addition of 10 individual visit scheme (IVS) eligible cities should effectively expand Macau’s addressable market and lift growth potential,’ indicates the memo.
Concretely, the IVS expansion and new visa arrangements are expected to structurally support visitation and mass GGR growth in Macau. UBS estimates the expansion of IVS-eligible cities increases the IVS catchment by 10 percent in GDP and 13 percent in population terms, driving higher visitor penetration with the ramp-up of flight capacity between the new IVS-eligible cities and Hong Kong and Macau, which will increase around 31 percent quarter-to-quarter in 2Q24.
Along with the introduction of new visa arrangements, this should continue to support mass strength in the second half of this year.
At the same time, stabilizing cost inflation and competition should moderate margin pressure in 2024, also supporting Macau’s gaming growth.
The 2024 EBITDA estimate remains unchanged at 89 percent of the 2019 level, based on higher mass GGR assumptions, offset by lower non-gaming revenue.
‘Key positive catalysts include proof of effectiveness of the recent visa relaxation and IVS expansion, margin stability, lower gearing, and higher cash returns to shareholders,’ it adds.
Galaxy expected to outperform in the near term
In a separate investment memo, Morgan Stanley notes that Macau gaming operator Galaxy Entertainment appears to have gained market share, while Wynn Macau seems to have lost some.
Based on the first two months of 2Q24, the brokerage expects Galaxy to outperform in the very near term.
Additionally, Macau GGR is tracking in line with or better than consensus, but EBITDA is missing estimates, and revisions have been negative since October 2023.
According to data provided by Morgan Stanley, Sands China continues to lead market share among the six gaming operators, with 24.2 percent in April and May, a figure that remains unchanged compared to 1Q24.
‘Sands tends to gain share during the holiday season, enabled by its large hotel inventory. This could be the reason Sands gained mass share in May on a MoM basis,’ the memo adds.
Galaxy held 18.9 percent of the market share in the first two months of this quarter, up from 17.5 percent recorded in 1Q24.
