Macau casino 1Q property EBITDA likely up 26pct: MS

Macau casino operators collectively are likely to have seen property-based earnings before interest, taxation, depreciation and amortisation (EBITDA) rise by 26 percent year-on-year in the first quarter, said a Sunday note from banking group Morgan Stanley.

Wynn Macau Ltd should report growing “the fastest” at 16 percent quarter-on-quarter and MGM China Holdings Ltd “the slowest” at -4 percent quarter-on-quarter, “which we see partly reflected in stock performance,” wrote analysts Praveen Choudhary, Jeremy An and Thomas Allen.

“We think SJM [Holdings Ltd] and Sands [China Ltd] seem better positioned than Galaxy [Entertainment Group Ltd] in the near term” in terms of stock performance, they added.

The institution noted that market-wide, Macau gross gaming revenue (GGR) was up 21 percent year-on-year in the first quarter – to approximately US$9.5 billion – as reported by the local gaming regulator on April 1.

“We estimate property EBITDA has grown by 26 percent year-on-year to US$2.4 billion, due to positive operating leverage, despite higher VIP growth (24 percent year-on-year) versus mass (17 percent year-on-year),” stated the Morgan Stanley team.

Typically, a business that makes sales that offer a high gross margin and limited fixed costs and variable costs is considered to have high operating leverage.

“We think VIP growth came mainly from Sands China and MGM China, while mass growth was likely helped by Wynn Macau,” added the analysts.

“We believe SJM [Holdings] could see property EBITDA growth of 6 percent quarter-on-quarter and 9 percent year-on-year in first-quarter 2018,” said the Morgan Stanley team.

Improvement “likely came” from Casino Grand Lisboa (pictured), SJM Holdings’ flagship resort in the traditional downtown district, “which probably saw both mass and VIP business grow by single digits year-on-year,” noted Messrs Choudhary, An and Allen.