Macau Casino Revenue Estimates Could Be Too Conservative Says Analyst
Some analysts think revenue predictions for operators there could be overly modest, despite a solid showing in May when Macau concessionaires produced the strongest monthly gross gaming revenue (GGR) tally since prior to the onset of the coronavirus outbreak.
The cumulative GGR generated by the six Macau concessionaires last month was $2.5 billion, which was 22% less than the May 2019 number and represented a 9% sequential gain as well as a 30% year-over-year jump. The May 2024 GGR was predicted by analysts to be 24% lower than the same period five years prior. Macquarie analyst Chad Beynon pointed out in a recent report to clients that Wall Street's GGR projections for Macau operators might be overly cautious given the solid May results.
"Linda Huang, Macquarie’s Head of Asia Consumer Research, noted in a recent report that the seq decline in May vs 2019 was likely attributable to the quarter-to-date promotional environment (eg, referral player segment) becoming more rational, which would benefit Galaxy and Sands China. Bottom line, we believe the upward trajectory for Macau GGR growth remains intact post May’s result,” wrote the analyst.
In the decade that ended in 2019, the number of annual visits to the Asian casino center increased and peaked at 39.40 million. However, by 2023, that figure had dropped to 28.21 million.This suggests that Macau operators still have a long way to go before returning to pre-pandemic levels, and if they succeed, Macau gaming stocks may rise.
Revenue from Macau Casinos: Don't Expect June Doldrums
Expectations for another good GGR performance this month in Macau bode well for several casino equities, an asset sector that tends to slump in June.
Beynon predicts that Macau concessionaires will produce GGR of $2.3 billion overall this month, which translates to GGR of $7.2 billion for the second quarter. If that estimate comes to pass, it would be a 22% decrease from the same time in 2019.
Beynon points out that businesses who are shifting their focus to mass-market customers and non-gaming services stand to gain. Wynn Macau, a division of Wynn Resorts (NASDAQ: WYNN), is becoming less reliant on VIPs and possesses significant nongaming capabilities.
“With additional operator revenue growth in mass and nongaming, we model margin upside despite higher opex concessionaire commitments,” notes Beynon. “Overall, we believe consensus remains conservative, particularly for WYNN, which we believe can gain share. We continue to be bullish on the long-term growth prospects for Macau and rank Macau.”
Confident in MGM and Sands, Too
Apart from Wynn, the two US-based Macau operators are Las Vegas Sands (NYSE: LVS) and MGM Resorts International (NYSE: MGM). Beyoncé, along with Wynn, is optimistic about both names. All three companies are rated as "outperform" by him, and their price targets suggest an average upside of 32.3%.
For investors in Sands, this is especially significant because, in contrast to rivals MGM and Wynn, the business currently has no exposure to Las Vegas.
“As a reminder, after factoring in minority ownership, casino revenue is comprised as follows: WYNN — 39% Macau, 44% Vegas, 17% Regionals; LVS — 57% Macau, 43% Singapore; and MGM — 11% Macau, 62% Vegas, 27% Regionals,” concluded Beynon.
