China demand, limited travel choice good for Macau: MS

China demand, limited travel choice good for Macau: MS

Morgan Stanley banking group says it remains “medium-term bullish” on the Macau casino sector, due to factors including pent-up demand within China for a variety of leisure services and spending, coupled with the inability currently of mainlanders to travel much further afield than Macau, one of the country’s special administrative regions.

“We see a continued clampdown on online gambling and overseas travel to bode well for Macau,” wrote the brokerage in a Monday memo.

Referring to reports of capital controls out of the mainland potentially having a negative effect on high-roller play in Macau, analysts Praveen Choudhary, Gareth Leung and Thomas Allen noted: “For VIP, we see no spike in [mainland] officials being disciplined and liquidity in the system (total social financing, M1 money supply) remains abundant.”

The Morgan Stanley analysts also gave commentary referring to the third-quarter earnings season, which indicated Macau’s six casino operators were either in, or soon moving toward, positive earnings before interest, taxation, depreciation and amortisation (EBITDA).

“Companies have cut their operating expenses meaningfully, suggesting higher EBITDA margin in 2021/22, which will also be helped by mix change (towards mass),” said the Morgan Stanley team.

“Upcoming catalysts include reinstatement of Individual Visit Scheme (IVS) self-service kiosks, consumers getting used to being tested or availability of vaccine, and opening of the Hong Kong border without quarantine,” the analysts added, referring first to an automated application system for a type of mainland exit visa used by mainlanders wishing to travel independently to Macau.

A memo the same day from analysts DS Kim, Derek Choi and Jeremy An, of JP Morgan Securities (Asia Pacific) Ltd, observed that what it termed a “path to normalisation” for the Macau casino sector, “could be choppier in a next phase of recovery into 2021”.

Aggregate Macau casino gross gaming revenue (GGR) for the 10 months to October 31 stood at MOP45.88 billion (US$5.75 billion), a contraction of 81.4 percent year-on-year.

Vitaly Umansky, Tianjiao Yu, Kelsey Zhu and Xiaonan Zhang, of brokerage Sanford C. Bernstein Ltd, cited data from Macao Government Tourism Bureau, that the city’s daily visitor arrival tally surpassed 28,000 on Friday, November 20.

The figure was “the highest” in the “past nine months… partly due to the start of the Macau Grand Prix,” said the brokerage.

“We expect visitation to continue to increase slowly over the next months with a pickup in gaming visitors, as visa processing improves over time (assuming no impediments to travel due to rising Covid-19 infections),” added Sanford Bernstein, noting a return of self-service IVS kiosks on the mainland would be an important step.

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