Macau | 2019 could see gross gaming revenues 2 pct yearly drop - Brokerage

Analysts at Morgan Stanley estimate gross gaming revenues in 2019 could see a 2 per cent year-on-year drop, a prediction that goes against other analysts who predict a growth between 5 to 6 per cent

Macau (MNA) – Analysts at Morgan Stanley estimate the Macau gaming sector could see a 2 per cent year-on-year decrease in 2019, a prediction much more pessimistic than other analysts.

The brokerage believes this decrease – which were to happen would be the first yearly drop since 2015 – would be driven by negative VIP results, which is estimated to drop six per cent year-on-year, while mass market would see a lower growth of 2 per cent.

According to Morgan Stanley US analysts estimate a GGR yearly growth of 5 per cent, with Hong Kong analysts predicting a 6 per cent rise.

‘While Macau is a structural growth story driven by low penetration and improving infrastructure, we see the cyclical slowdown continuing in 2019. We change our industry view to In-Line from Attractive due to tightened liquidity, full smoking ban pressuring VIP and premium mass growth in 2019, and potential decline in EBITDA YoY growth in 1Q19,’ Morgan Stanley indicated.

If this estimates were to happen it would mean that while 2018 saw gaming revenues rise 14 per cent yearly to MOP302.85 billion (US$37.57 billion), 2019 would see the final year amount drop 2 per cent to MOP296.79 billion.

The company stated that the license renewal remains a ‘key overhang’, and could keep valuation multiples lower than long-term averages.

‘While we remain bullish on the prospects for all six concessionaires to keep their licenses, the market may continue to fear the unknown. Worse still, any licensing decisions may not be made until 2021 (after extending SJM/MGM for two years),’ the company indicated in its note.

Nevertheless, the brokerage also admitted 2019 could be an ‘inflection point for long-term outperformance’ since November and December gaming results were ‘better than expectations’.

The opening of new HZMB bridge will drive higher grind mass revenue. Recent policy relaxation in China’s property market could drive macro improvement in China and thus Macau’s GGR,’ the company added.