Analyst: Limited upside in Macau for U.S. companies

Monday, June 17, 2024 12:44 PM
Photo:  Shutterstock
  • David McKee, CDC Gaming

“Coming slower than expected” was Jefferies Equity Research analyst Andrew Lee’s take on the Macau casino market for June and July, writing that U.S. companies  – Las Vegas Sands, MGM Resorts International, Wynn Resorts –  faced limited potential upside.

The lone exception was MGM, which Lee liked for its performance in Macau as well as for easing comparisons in Las Vegas as it heads into the summer. Hong Kong-based Galaxy Entertainment received a thumbs-up for recapture of market share and for cash on hand.

Lee revised his revenue estimates for Macau downward this month, reporting that, on a historical basis, June tends to be 9 percent lower than average and July 6 percent higher. However, he cautioned that Chinese macroeconomic concerns created an overhang on gaming stocks.

According to Lee’s revenue forecast, June will come in only slightly ahead of December 2023 and lower than all other months this year, at or just above 600 million patacas ($74 million) per day. In June, the enclave is doing 533 million patacas ($66.3 million) per day.

Lee attributed this slowdown to a quartet of factors, including a three-day weekend in early June. He also noted a “post-holiday seasonal slowdown,” the recent ban on comped food and drink service in Macanese casinos and the beginning of the Euro 2024 soccer tourney.

Noting that those 533 million patacas per day were lower than prior guidance of 570 million to 630 million patacas per day, Lee forecast full-month revenue of 17.1 billion to 18.1 billion patacas ($213 million to $225 million) for June. That would make it, he predicted, the slowest month of 2024.

Even so, he opined that “Macau sector fundamentals and valuations remain disconnected.” Lee noted that were June to hit the high of the latest guidance, it would be at 77 percent of pre-COVID levels of business. May figures are not available but foot traffic in April reached 76 percent of 2019 volumes.

“However, Macau sector valuations are implying a high level of risk in the recovery, as most Macau-related names under coverage are trading below mid-cycle,” Lee cautioned. He added that Sands, MGM and Wynn were trading near the bottom of their historical range.

The Macao News reported today that Macanese visitation in the first five months of 2024 was 50 percent higher than in 2023. Spending in the January-March period rose 36 percent.

This recovery was achieved largely without long-haul flights from South Korea, which are down 50 percent from pre-pandemic altitudes. Hotel occupancies have been averaging 85.5 percent, according to figures released by the Macao Government Tourism Office.