Casino Revenues Display Strength Despite National Spending Slowdown: Morgan Stanley

Macau’s gaming sector has the potential to expand its growth as market capitalisation (market cap) hovers near historical lows, a recent Morgan Stanley report has pointed out.

The report, prepared by six industry analysts and focused on global gaming, stressed that Macau’s fundamentals appeared to be resilient despite “macro softness” on the Chinese mainland.

Macau’s market cap stands at approximately US$45 billion (MOP360 billion), with an enterprise value (EV) close to US$65 billion, indicating a market that is trading near historical lows.

“The sector market cap has reached a similar level four times before (Sep 2011, Jul 2012, Jan 2016 and Oct 2022). Every time, it recovered to at least double the prior market cap,” the report stressed.

Morgan Stanley said that Macau’s visitation and gross gaming revenue (GGR) accounted for nearly 80 per cent of the 2019 levels based on the figures for July and August.

“We looked at the resilience of pachinko buy-ins in Japan during its long deflation era between 1995 to 2006. We compare Macau casino revenue with Macau retail sales and China retail spending over the last five months and see a similar resilient performance,” the analysts said.

The potential for further expansion in gaming, as the analysts pointed out, is linked to the industry’s resilient nature, embodied by visitation to the city and its GGR recovery.

The industry resilience unfolded at a time when nationwide consumption, especially in jewelry, tobacco, liquor, and cosmetics, appeared to show, with slower second-quarter sales extending into the first two months of the existing quarter.

Consumer spending on the items above, based on Morgan Stanley’s records, have returned to nearly 120 per cent to 195 per cent of the 2019 figures.

“We have seen retail sales and rental revenue in Macau slow down in recent times, which is consistent with Hainan, Shanghai and Hong Kong slowdowns, but we have not seen a similar impact on gaming revenue, suggesting the resilient nature of the Macau businesses,” the report noted.