Even if HK/ China/ Macau quarantines are not removed, the relaxation for visitors coming from China using package tours and IVS could be positive for Macau, if fully implemented, and boom for stocks, leading brokerage Morgan Stanley reports.
Macau’s CE announced potential relaxation for visitors coming from China using package tours and IVS (e-visa). If fully implemented, this could be EBITDA and FCF positive for most Macau companies, even if HK/China and HK/Macau quarantines are not removed.Â
Morgan Stanley views the developments positively for Macau stocks.
Over the weekend, Macau Chief Executive Ho Iat-Seng announced that Macau and mainland authorities have agreed to resume package tours and e-visa soon.Â
Ho Iat-Seng estimated that daily visitation could rise to 40K once implemented in late October or early November, the brokerage noted. This will begin in a few provinces first.
Morgan Stanley argues this will be positive for visitation, revenue, and profitability of all Macau companies.
Mainlanders have been able to obtain visas (through IVS) to visit Macau without any quarantine since Sep-20, the brokerage noted.
However, even the best quarter (2Q21) during COVID saw daily mainland visitation of just 22K (29% of 2Q19), with IVS accounting for only 8.4K and daily mass revenue of MOP207m (44 percent of 2Q19).
Morgan Stanley suggests this was due to the absence of group visas, IVS e-visas, and HK/Macau border closure.
In 2019 (pre-COVID), Macau received daily total visitors of 108K, of which 76K were from the mainland and 20K from HK. Of those 76K mainlander visitors, 47 percent (36K) used IVS, and 23 percent (18K) used package tours, the brokerage highlights.
Assuming package tours and IVS e-visas are relaxed in October, Morgan Stanley forecasts that Mainland visitation could reach 45 percent of the 2019 level and mass revenue 60 percent, enough to be EBITDA and FCF positive for most operators.
Even after these two relaxations, we await HK/Macau border opening and relaxation of COVID test validity (from currently 48 hours to 7 days) for full recovery, Morgan Stanley substantiates.
The brokerage claims gradual border opening has begun and expects this to continue throughout 2023.
Although 2023 may not match pre-COVID revenues or profits, Morgan Stanley expects 2024 to surpass 2019 mass revenue and, thus, profit.
The brokerage believes investors with longer horizons should look to add positions in this space.
In turn, the Macau Government announced MOP 8,000 in e-vouchers for residents that must be spent between 28 Oct 2022 and 30 June 2023, with a daily cap of MOP 300.
The measure could help retail businesses of Galaxy and Sands China, leading brokerage Morgan Stanley argues.
