Morgan Stanley Revises EBITDA Estimates for Macau Gaming Industry

Global investment bank Morgan Stanley has adjusted its EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) estimates for the Macau gaming industry, taking into account various sectoral challenges. In a recent note, Morgan Stanley analysts Praveen K Choudhary, Gareth Leung, Stephen W Grambling, and Nicholas P DeValeria outlined the factors contributing to this adjustment.

According to the note, achieving fully comparable industry EBITDA figures to those of 2019 would require mass casino revenue to reach at least 120% of pre-pandemic levels. The report highlighted several challenges contributing to this goal, including increased gaming taxes, a substantial decline in VIP segment revenue by over 75% compared to 2019 levels, and a slower recovery in the slot machine sector.

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During the third quarter of 2023, contributions from slot machines, which represent the highest-margin gaming product, were only at 80% of pre-pandemic levels, the report noted.

In light of these dynamics, Morgan Stanley has revised its industry EBITDA estimates for 2023 and 2024, reducing them by 5% and 2%, respectively.

Despite these challenges, Macau stocks have remained in line with the Hang Seng Index and have even outperformed several Chinese consumer stocks, according to the brokerage. The short-term outlook suggests stock prices may experience a range-bound pattern, as September typically sees weaker demand following robust leisure and travel activity in July and August.

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However, the analysts anticipate a strong October holiday season and the traditionally robust fourth quarter to drive revenue and EBITDA growth, potentially exceeding a quarter-on-quarter increase of 10%.

Year-to-date, the gaming sector has reduced its net debt by $1.7 billion (MOP13.7 billion). According to Morgan Stanley’s estimates, it will take approximately three years to fully recover to pre-Covid net debt levels.

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