MACAU

Early optimism for a swift snap back past history it will be the VIP segment to is fading as the virus rages across recover first. Europe and North America and The World Bank has warned that the Asia suffers with a new wave of coronavirus may bring China’s economy contagions, largely imported from elsewhere.

Macau’s Gaming Inspection and Control driving 11 million people into poverty. It would Board (DICJ), reported that gross gambling be the worst economic performance in the revenue for March had plunged 80 percent to world’s second-largest economy in 44 years. MOP5.3 billion ($664 million) The decline for More than 460,000 Chinese firms are the first quarter as a whole was 60 percent.

The casinos in the world’s biggest gambling hub are open, with social distancing restrictions in place, however the territory has all but closed its doors to the outside world, implementing even tighter controls in late March to stop the spread of imported cases. With 90 percent of the customer base coming from overseas, visitation has again slowed to a trickle and analysts are predicting a slump of at least 90 percent for the month of April.

Morgan Stanley cuts its forecast for 2020 GGR for Macau in March to a drop of 25 percent and said it doesn't see a tipping point until late October. Bernstein Research forecasts a fall of 37 percent.

Ben Lee, managing partner of iGamiX said that he isn't expecting meaningful signs of recovery in Macau until mid-2021.

“Global tourism (with gaming as part of with abundant cash on hand, no debt and that), with a huge chunk of that attributable in a worst case scenario, 40 months or so of to the Chinese, that we know of no longer breathing room before needing to draw on exists,” he says. “It will be months, possibly years, for the Chinese economy and psyche to recover to the 2018/2019 levels."

He argues that Chinese customers will be focusing on building back their businesses and savings and discretionary spending will be low on the list of priorities.

“This means re-writing a lot of the feasibility reports that have been predicated on the Chinese outbound market. It also means lowered domestic gaming for other jurisdictions as the mass struggle to recoup from the massive job losses currently being experienced," he said, adding that based on past history it will be the VIP segment to recover first.

The World Bank has warned that the coronavirus may bring China's economy virtually to a standstill this year, potentially driving 11 million people into poverty. It would be the worst economic performance in the world's second-largest economy in 44 years.

More than 460,000 Chinese firms are estimated to have closed down in the first quarter, while 3.2 million businesses were established, a 29 percent drop on the prior year, pointing to a big dent in the finances of Macau's player base.

Still, analysts say, the territory's six operators are all well placed to weather the current storm.

They have enough liquidity for the next six months before they are likely to need to draw on debt financing, Bernstein said.

Concerns about liquidity have exacerbated the declines in Macau gaming stocks, the firm notes, but adds even if the no revenue environment continues, the companies have about 15 months of breathing space before additional funding would be needed, with the exception of Studio City, which has about a year.

"Galaxy is clearly the least risky operator with abundant cash on hand, no debt and in a worst case scenario, 40 months or so of breathing room before needing to draw on any new liquidity," it said. "Other operators have between 6 and 17 months of headroom with existing cash balances and 15 to 25 if the full amount of each company's revolver is drawn. These figures assume a worst-case outcome of no revenues, limited reduction in operating costs, minor reduction in maintenance capex and other company specific items."

The firm also notes that the companies are able to negotiate waivers and other amendments to clauses on their debt financing, with MGM China and Sands China having already done so.

Paradise Entertainment said it has withdrawn from management of the Casino Waldo, citing the need to invest in additional monitoring systems and equipment and the adverse impact of the coronavirus on business. Following the expiration of the related service contract on February 29, 2020, the group decided to cease providing casino management services in Casino Waldo from March 1, 2020 and did not request for renewal or extension of the service contract, it said, adding it would put its focus on maximising returns from Casino Kam Pek Paradise. For 2019, total revenue amounted to HK$1.18 billion (US$154 million), which was up 1.5 percent year-on-year, and Adjusted EBITDA came in at HK$87, which was down 28 percent on the 2018 figure.

MGM China (2282:HK) is operating two casinos, with its MGM Cotai IR opening in February last year. The HK$27 billion IR features 1,400 hotel rooms and suites, meeting space, high end spa, retail offerings and food and beverage outlets and its ramp up has helped the company gain market share in the latter half of 2019.

For 2019, the company saw revenue up 19 percent year-on-year, driven by non-VIP gaming.

Said revenue reached HK$22.8 billion. Adjusted EBITDA grew by 28 percent year-onyear, reaching HK$6.2 billion. MGM said that 86 percent of its profit was driven by non-VIP businesses in the year.

Fitch Ratings recently downgraded MGM Resorts International’s and MGM China Holdings’ issuer default ratings as well as their unsecured debt due to “decreased financial flexibility following the recent sale-leaseback transactions as well as the severe disruption to global gaming caused by the coronavirus outbreak.” Fitch also revised the firms’ rating outlook from stable to negative.

MGM also announced that Bill Hornbuckle, COO and president, will be acting CEO, replacing Jim Murren who announced his resignation in February.

Galaxy Entertainment Group (27.HK) has three main properties and runs three City Club casinos inside hotels. Galaxy Entertainment reported full-year net revenues at US$51.9 billion, down 6 percent year-on-year, while adjusted EBITDA was US$16.5 billion, down 2 percent year-on-year. The final quarter of 2019 contributed to these soft results.

The flagship Galaxy Macau and StarWorld Macau both saw declines in revenues and profitability in 2019, with only Broadway Macau making progress over the 2018 figures.

Bernstein Research said that some of the decline was anticipated by analysts “due to ramp up of newer Cotai properties such as Melco’s Morpheus Tower and MGM Cotai,” which added enhanced competitive pressures.

The company was ordered to cease work on the Phase 3 expansion of Galaxy Macau in late March after three workers were killed in an accident when scaffolding collapsed. Phase 3 of Galaxy Macau is to feature 1,500 hotel rooms, some casino space, a largescale arena with 16,000 seats, and 400,000 square feet (37,161 sq metres) of MICE space. The launch is scheduled for the first half of next year.

Wynn Macau (1128:HK) operates two resorts, with its $4 billion Wynn Palace opening in 2016. The company’s original property is on the Macau Peninsula. The Wynn Palace has 1,700 hotel rooms and 90 percent of the resort is non-gaming. In November, the company opened elements of its new Lakeside Casino at Wynn Macau.

For Q4, Wynn’s results came in below expectations. Operating revenue at Wynn Palace dropped 20.3 percent, with adjusted property EBITDA down 21.6 percent, while at Wynn Macau operating revenues dropped 5.1 percent, with EBITDA off 1.5 percent. Overall gross gambling revenue at Wynn Macau was down 20 percent year-on-year to $1.24 billion in the quarter, giving it a share of 13.9 percent of the Macau market, down from 14.2 percent in the prior quarter.

The company recently raised its commission rate to junkets for the first time in 14 years to tempt back its share of the rolling market in Macau.

“As per our checks, Wynn lifted junket commission from 40 percent to 42.5 percent effective 1 March, matching its Cotai peers,” said analysts at Credit Suisse, which notes Wynn’s share of the VIP market dropped to 16 percent at end-January from 23 percent in Q1, 2019.

Melco Resorts & Entertainment (6883. HK) has three casinos and the Mocha Clubs. The company operates the City of Dreams and Studio City in Macau and the City of Dreams Manila. It is also developing a resort in Cyprus and maintains a strong focus on Japan. For Q4, total operating revenues were US$1.45 billion, representing an increase of approximately 3 percent year-on-year – in line with analyst estimates. Net income attributable to Melco, however, fell to US$68.1 million, compared with US$126.6 million a year earlier.

The company granted restricted shares worth about $19.3 million to CEO Lawrence Ho, in part to preserve its cash position during the Covid-19 crisis.

The executive was granted restricted shares in respect of 1,553,780 American Depositary Receipts under a share incentive plan. They represent about 0.32 percent of the company’s issued shares and will be granted in two equal tranches on March 31, 2022 and March 31, 2023. The company said the shares are in lieu of a cash bonus that would have been payable.

Sands China (1928:HK) has five properties in Macau. The company has 12,000 hotel rooms and suites, making up for 48 percent of hotel rooms run by casino operators in Macau. For 2019, the company reported profit of US$2 billion, which was an 8.4 percent advance over the previous year’s figure. Net revenues of over US$8.8 billion represented a 1.7 percent increase.

In the fourth quarter, Sands beat estimates by 2 percent, with adjusted property EBITDA up 3 percent at $811 million. It gained market share in the quarter to 24.3 percent from 23.2 percent in the same quarter a year earlier. The results were driven mainly by a strong performance in base mass, though premium mass was weaker.

Moody’s recently placed the ratings of Las Vegas Sands on review for a downgrade given the steep drop in gaming revenue at its Macau and Singapore operations as a result of the coronavirus.

The ratings review will focus on LVS’ ability to preserve its liquidity during this period of significant earnings decline.

SJM Holdings (880:HK) has 22 casinos in Macau, though the former monopoly has been losing market share to new IRs on Cotai. The company posted a 12.5 percent gain in profit for 2019 and said it was in a solid position to weather the challenges posed by the Covid-19 outbreak.

Profit attributable to owners of the company was HK$3.2 billion ($411.8 million), while adjusted EBITDA rose 13.2 percent to HK$4.21 billion. The company said net gaming revenue dipped 1.5 percent to HK$33.16 billion. The company said its flagship Casino Grand Lisboa had a decrease in gross gaming revenue for the year of 17.6 percent and an increase in adjusted Grand Lisboa EBITDA of 12.9 percent.

Grand Lisboa Hotel’s occupancy rate decreased by 1.7 percent to 93.8 percent for the full year, whilst the average room rate increased by 0.9 percent to HK$1,508.

SJM said it has now completed construction work on its Grand Lisboa Palace on Cotai and it has applied for the relevant operational licenses for late 2020. It gave no further comment on the likely opening date in its earnings release.

Success Universe, an investor in Macau’s Ponte 16, said group revenue for 2019 gained two percent to HK$1.14 billion ($147 million).

The company’s share in the profit generated from Ponte 16 was $116.8 million, up about 71 percent. Success Universe says gross gambling revenue at the property outperformed the wider Macau market during the year, which saw a 3.4 percent decline.

Gross profit was down 12 percent to about $30.3 million, while profit attributable to owners of the company was $74.2 million, up from $54.5 million the prior year. As of Dec. 31, the casino of Ponte 16 had 109 gaming tables, consisting of 98 mass gaming tables, 7 highlimit tables and 4 VIP tables. The group warned that the impact of the coronavirus outbreak on the group’s operating results and cash flow may be “significant,” but can’t be reasonably estimated at present.