Morgan Stanley Lowers Macau’s 2021 GGR Revenue

Morgan Stanley, a worldwide brokerage and financial business, has reportedly lowered its prediction for Macau’s aggregated gross gaming revenues in 2021 due to the ongoing effects of the coronavirus outbreak.

According to a study from GGRAsia, the financial services giant now anticipates casinos in the former Portuguese enclave to generate combined annual gaming revenues of $16.3 billion, down 19 percent from its earlier prediction. This downgrading comes as local government officials continue to implement a variety of coronavirus-related restrictions for persons travelling between Macau, Hong Kong, and mainland China, according to the source.

Expectations are high

Macau presently has 41 casinos, including the famed Casino Grand Lisboa from local powerhouse SJM Holdings Limited, which reportedly had dismal combined gross gaming revenues of $7.5 billion last year due to the disruption of the coronavirus outbreak. Morgan Stanley had previously stated that it expected the final figure for 2021 to represent an improvement of roughly 168 percent year-on-year, but its revised prediction now translates to an expansion of only 117 percent.

Problems with procrastination

Morgan Stanley analysts Thomas Allen, Gareth Leung, and Praveen Choudhary reportedly used an official Sunday filing to proclaim that the enclave’s casinos are still waiting for revenues and earnings to “normalise” after a coronavirus-related disruption that lasted over 26 months. In order for this to happen, the three allegedly stated that Macau must reintroduce the electronic application system for Individual Visa Scheme (IVS) exit passes, restore the issuing of group travel permits, and allow persons from Hong Kong and mainland China to freely enter and exit the territory.

Expectations for earnings

The three experts reportedly went on to say that they expect such steps to take place in the second half of the year, allowing Macau casino operators to post aggregated annual earnings before interest, tax, depreciation, and amortisation of around $2.8 billion, down nearly 37 percent from their previous forecast of $4.6 billion. According to reports, the city’s gambling properties made a combined $9.2 billion profit in 2019, with the latest forecast predicting a comeback to about $9.3 billion in 2022.

Culpability for credit

Morgan Stanley analysts, on the other hand, are said to have counselled caution, claiming that since the start of the coronavirus outbreak, casino operators in Macau have raised more than $8.5 billion in fresh debt with an average interest rate of 5 percent. According to the trio, this new capital will incur approximately $400 million in annualised interest payments going forward, which is roughly 5.5 percent of the sector’s 2019 free cash flow-to-equity ratio.

A statement from Allen, Leung, and Choudhary read: “In the last five quarters, we estimate the industry lost around $6.9 billion of cash flow. Free cash flow-to-equity will be worse even if earnings before interest, tax, depreciation and amortization normalizes to 2019’s level due to the increased interest expenses.”