Long-running hopes for a gaming industry recovery in Macau could arrive in 2024 and might find support from mass market table games.
That’s the take of JPMorgan analysts led by DS Kim who notes Macau operators’ earnings before interest, taxes, depreciation and amortization (EBITDA) could hit 95% of pre-coronavirus pandemic levels in 2024. In a note released last weekend, the analysts point out that Macau’s newly revised gaming law includes limits on the number of table games each casino can offer and that could prompt concessionaires to up offerings to mass market vistors.
Under the special administrative region’s (SAR) new gaming laws, regulators limit slots to 12,000 devices across Macau casinos and 6,000 table games. While those figures are in line with the levels seen at the end of the second quarter, they’re markedly below those seen before the coronavirus pandemic. In 2019, there were more than 17,000 gaming machines at Macau gaming venues and 6,739 table games.
Kim notes that table cap isn’t material because while there 6,739 table games operational in the special administrative region (SAR) in the last quarter before the pandemic, a significant percentage of those are now gone due to the demise of the junket business.
Macau Table Cap Not Major Threat to Operators
On the surface, the table cap appears onerous for operators, but that’s not the reality. For example, industry observers believe some Macau concessionaires simply don’t have the space to add more table games, limiting the potential threat the cap poses to larger rivals.
Analysts previously mentioned MGM China, which runs two Macau venues, as a prime example of a concessionaire that doesn’t have the room to add more slots and tables.
We estimate there were only about 4,000 mass tables directly operated by casinos (excluding junkets and satellites) in 2019 (peak for mass GGR), so the table cap of 6,000 presents significant headroom … theoretically, up to 50% additional capacity for mass,” added JPMorgan’s Kim.
Among the six Macau license holders, Galaxy Entertainment and Sands China are the dominant names when it comes to mass and premium mass visitors.
Macau Operators Nearing EBITDA Profitability
Macau, once the crown jewel in the global gaming industry, is heading for its worst year on record in terms of gross gaming revenue (GGR) due to China’s ongoing zero-COVID policy. Those restrictions have punished operators’ ability to generate profits and keep debt low since the start of the pandemic.
That ominous scenario could cease as soon as the first quarter as JPMorgan forecasts profitability for Macau operators on just 35% of pre-pandemic demand. The bank also estimates concessionaires’ cash flow will turn positive in the second or third quarter of 2023.
“We maintain our model for mass and non-gaming demand to recover fully during 2024, but we place VIP numbers at near-zero levels, as this segment has probably been structurally impaired,” concluded Kim.
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