Macau’s gaming industry is closely monitoring how the new leadership will influence policies affecting the sector, as Bank of America notes that “a key unknown for the sector remains the regulatory climate under a new Chief Executive.”
Macau’s new Chief Executive, Sam Hou Fai, was elected on Sunday, October 13th, and his term will begin in December, coinciding with the Macau SAR’s 25th anniversary celebrations.
During the campaign period, Sam Hou Fai urged gaming operators to ensure the industry’s growth is maintained through “healthy, orderly, and sustainable” development. At the same time, Sam further explained that this form of development doesn’t mean shutting down or downsizing the industry.
In a recent investment memo, the brokerage highlights that Macau’s gaming sector has shown resilience, particularly with stronger-than-expected gross gaming revenue (GGR) from the October Golden Week. This positive performance underscores Macau’s potential to navigate challenges, despite weak consumer spending in mainland China. Additionally, the Chinese central government’s more coordinated economic policies have helped reduce broader macroeconomic risks.
Bank of America also pointed out that, while China’s consumption growth may take time to recover, investors expect Macau’s GGR to align with China’s GDP growth by 2025.
For gaming operators, this suggests that income returns may serve as a key differentiator. As a result, the firm projects that Sands China will resume dividend payouts in the second half of 2025, while the four dividend-paying operators are expected to see an average yield of around 3 percent. This yield could increase further as companies complete their deleveraging efforts.
GGR projections
Bank of America has revised its forecasts for 2024 and 2025 GGR based on recent trends. The firm raised its 2024 GGR estimate by 2 percent to MOP227 billion ($28.32 billion), reflecting a 24 percent increase compared to the previous year and amounting to 78 percent of pre-pandemic levels.
For 2025, the estimate was increased by 7 percent to MOP230 billion ($28.7 billion), indicating a 2 percent year-on-year growth. The brokerage notes that the projection reflects an underlying growth of 4-5 percent. However, this growth may be tempered by the ongoing effects of the crackdown on illegal currency exchange activities in early 2025.
In terms of EBITDA, the brokerage adjusted its estimates upwards by 2 percent for 2024 and by 10 percent for 2025.
Commenting on 3Q24 results, Bank of America noted that while GGR saw a 13 percent year-on-year increase, there was a slight 1 percent decline compared to the previous quarter, largely due to typical seasonal trends. For 3Q24 EBITDA, a 6 percent decline quarter-on-quarter is expected, attributed to increased promotional efforts across the industry.
Operator performance outlook
Among the gaming operators, Bank of America expects SJM Holdings to show the strongest performance rise, with a 20 percent growth in EBITDA in 3Q24 compared to the previous quarter, driven by the continued ramp-up of its Grand Lisboa Palace. In contrast, other operators are likely to see a decline in EBITDA.
Analysts are expecting drops of 19 percent for MGM China due to increased event costs, with Galaxy Entertainment to be down 10 percent due to seasonally lower construction EBITDA and potential market share loss in September, Melco falling by 6 percent amid its ongoing investment, and Sands by 3 percent as a result of renovation work.
The firm also cautioned that additional non-gaming event costs in the second half of the year could pose a risk to profitability.
3Q24 mass GGR remains flattish QoQ
In another investment memo, UBS anticipates a relatively stable performance for mass GGR in 3Q24, remaining flattish on a quarter-on-quarter basis. In contrast, VIP GGR is projected to decline by approximately 14 percent compared to the previous quarter. This decline in VIP revenue underscores ongoing challenges in that segment, which have persisted throughout the year.
For 3Q24, the Gaming Inspection and Coordination Bureau (DICJ) reported total gross gaming revenue of MOP55.6 billion ($6.94 billion), averaging around MOP604 million ($75.4 million) per day. This figure represents a 14 percent year-on-year increase; however, it reflects a slight decline of about 1 percent compared to the previous quarter.
This performance is weaker than the usual seasonal trends, largely attributed to one-off events, including the European football tournament that took place in June and July, as well as a delayed start to the school holidays in July.
On a positive note, the non-gaming sector is expected to experience a seasonal uptick, driven by an increase in visitor arrivals at teen rates compared to the previous quarter. This increase in foot traffic translates to a forecasted rise in sector non-gaming revenue of around 5 percent compared to the previous quarter.
The uplift in non-gaming activities suggests that while gaming revenue faces challenges, other areas are benefiting from enhanced visitor engagement and spending.
Despite the anticipated growth in non-gaming revenue, analysts from UBS expect that the sector’s luck-adjusted EBITDA will decline by approximately 3 percent compared to the previous quarter’s performance. This projection highlights the overall impact of the weaker gaming performance on the financial outlook for the sector.
