Mass revenue to exceed 2019 levels, dividends to resume after deleveraging – Brokerage

The Brokerage Morgan Stanley also expects that Macau’s mass-market revenue will exceed 120 per cent of its 2019 level due to the growth in China’s nominal GDP and the observed recovery rate in Las Vegas.

According to its recent research report, Macau is expected to benefit from the increasing penetration of Chinese air travel, which will lead to an increase in average spending per capita and visitation.

Chinese visitation to Macau via air is projected to grow to 116 per cent and 121 per cent of 2019 levels in 2024 and 2025, respectively.

The analysts predicted that mass market revenue would increase to 115 per cent and 125 per cent of 2019 levels in 2024 and in 2025 respectively, driving the industry’s property EBITDA to reach US$10 billion and US$11 billion.

The investment bank also noted that gross gaming revenue could beat consensus estimates in May amid accelerating year-on-year growth in revenue.

“Potential China stimulus could drive a further increase in consumer spending. Grind mass or group visas have yet to normalise, and thus we expect more upside in the coming months,” Morgan Stanley stated in the update.

Meanwhile, the brokerage firm said that local gaming stocks’ earnings revisions had turned positive at the start of the year, and that they are expected to continue to rise.

Macau gaming stocks incurred a significant amount of debt during the pandemic. However, the analysts have estimated that the industry is already generating positive free cash flow to equity (FCFE) in the first quarter of 2023, and that the FCFE is expected to be much closer to pre-Covid levels from the second quarter onwards,.

The improvement in FCFE will aid the industry in deleveraging, providing further upside to stocks. Morgan Stanley anticipates that Macau gaming stocks will resume paying dividends after deleveraging, having stopped paying dividends during the three years of the pandemic.

“Macau gaming stocks could provide one of the highest dividend yields (6.8per cent) if the industry resumed dividends, which could come earlier if recovery momentum continued to hold up strongly,” the analysts said.