Macau operators to lose over US$1 billion in EBITDA in Q2

Previewing the upcoming 2Q20 results season, which is due to kick off in the coming weeks, in a Monday note, Morgan Stanley's Praveen Choudhary and Gareth Leung outlined expected EBITDA losses of around US$1.04 billion between the six concessionaires, including US$286 million by Sands China and US$205 million by Melco Resorts & Entertainment.

However, the analysts added that operator results will be less notable for their respective losses – well known to be the worst the industry has ever experienced due to COVID-19 – than for which companies were better able to control operating expenses.

The results "could provide a glimpse into operating expenses (fixed costs), who managed to reduce the most and what proportion of the cut is sustainable," Morgan Stanley said.

"Macau stocks rose 21% in 2Q20, outperforming the Hang Seng Index by 15 percentage points; we think the market believes the worst is behind us and pent up demand and removal of overseas destinations as a choice could drive upside to estimates.

"While 2Q numbers may not provide when the travel restrictions will be lifted or how big 2021 could be, it can answer two questions: (1) who controlled costs the most, and (2) who lost the least as a percentage of Enterprise Value."

The analysts said daily operating expenses of the six concessionaires appears to have fallen by a combined 21% year-on-year to around US$15 million, but that EBITDA losses are expected to come in at around US$1 billion on "negative operating expenses" with some revenue from non-gaming and malls.

Macau's operators recorded an EBITDA gain of US$2.4 billion in 2Q19.

Based on DICJ figures, which saw a dramatic 97% year-on-year GGR decline in June, VIP revenue is tipped to have fallen by around 97% in 2Q20, more than the 95% tipped for mass, due to a low win rate.