The city’s six incumbent gaming operators – MGM Grand Paradise Limited, Galaxy Casino Company Limited, Venetian Macau Limited; Melco Resorts (Macau) Limited, Wynn Resorts (Macau) Limited, and SJM Resorts Limited – have been awarded the new 10-year gaming concession licenses and have committed to invest a total of MOP180 billion (US$22.45 billion) in the development of non-gaming elements.

“Clarity is lacking on how operators are going to spend the required investment on non-gaming. Yet, many investment examples provided by Macau under the 11 non-gaming areas are opex in nature, which tends to have very low returns,” a recent Morgan Stanley dispatch warns

In the next ten-year period starting from 1 January 2023, the gaming operators will be required to carry out “incremental additional non-gaming investment” in the following year with an amount of around 20 per cent of their initial pledged non-gaming investment, if the Macau SAR’s annual gross gaming revenue reaches MOP180 billion by 2027.

In a recent dispatch, Morgan Stanley considers that this MOP180 billion target is achievable considering that “2019 mass revenue alone” was already US$22 billion and China discretionary retail values have stayed some 20 per cent above 2019 levels.

Still, the brokerage warned that the investment pledges will represent a much larger burden on Free Cash Flow to Equity (FCFE) and EBITDA for more cash-strapped gaming operators such as MGM China and SJM.

Despite the new requirements, Morgan Stanley is confident in the strength of the recovery and that post-Covid earnings will be stronger than pre-Covid now that e-visas resumed in November, China gradually moving away from its Covid Zero policy and the HK-Macau-Mainland border expected to reopen in the second half 2023.

“We expect 2024e GGR and Mass revenue at 70 per cent and 105 per cent of 2019 levels, respectively, which we think is conservative as positive drivers should

outweigh the negative ones,’ the brokerage added.

By Nelson Moura