Morgan Stanley raises Macau 2023 EBITDA estimates by 70% on better gaming mix

According to Morgan Stanley analysts Praveen Choudhary, Gareth Leung and Stephen Grambling, Macau is on track to achieve GGR of US$22 billion in 2023, enough to see industry EBITDA reach US$5.8 billion. While this is still well below the US$9.3 billion in EBITDA reported in 2019, the Morgan Stanley estimate is 30% above street consensus of US$4.5 billion. Likewise, its 2024 EBITDA estimate of US$9.6 billion – placing it above 2019 levels – is 17% higher than consensus.

The revised estimates, the analysts say, comes amid China’s reopening and the fact that “resulting revenue/profit for Macau companies came in ahead of our expectations in the first two months of the year.

“However, we also find comfort in the sustainability of premium mass in the absence of junket business, which is important to achieve the pre-COVID level of EBITDA.”

On profit and loss, they add, “Apart from higher tax and higher gaming area rent, we also investigate the opex, staff cost and higher interest expense to arrive at the conclusion that EBITDA margin will be 500 bps higher [in 2024] than in 2019. The majority of this improvement is due to the absence of junket VIP, but as mass reaches a certain level, operating leverage also kicks in.”

Explaining the fact that they are substantially above consensus in their latest estimates, the Morgan Stanley analysts outline two key reasons

One, “Historically Macau’s mass segment has correlated highly with China’s nominal GDP, which is already >20% higher in 2022 vs 2019 and could grow at 4% to 5% each year going forward.”

And two, “Infrastructure improvement during COVID [including] larger customs checkpoints and 16% more hotel rooms (equivalent to 4,000 new rooms) in Macau.

“As explained, we expect 2024e industry EBITDA to be back to/ slightly above the 2019 level thanks to revenue mix improvement, and EBITDA margin could increase from 23% in 2019 to 28% in 2024.”

Macau recorded GGR of MOP$11.58 billion (US$1.43 billion) in January, its highest monthly revenue tally in three years.