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Macau's crown slips, but second wind with reopening deals a better hand

Jovi Ho
Jovi Ho • 8 min read
Macau's crown slips, but second wind with reopening deals a better hand
Officially opening this month, The Londoner Macao (pictured) joins The Venetian Macao and The Parisian Macao as Sands Resorts Macao’s Europe-themed trio of integrated resorts / Photo: Sands Resorts Macao
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As the world’s biggest gambling hub, Macau’s fortunes have proven worse than most over the past three years. The Chinese special administrative region, which relies on gaming revenue for 80% of its income, closed its casinos in February 2020 and July 2022 as the pandemic slammed borders shut and kept mainland Chinese gamblers home.

Even as the pandemic was ongoing, the industry was spooked by the high-profile arrest of “junket king” Alvin Chau in 2021. Besides organising gambling trips for high-rollers, Chua extended loans for them to play and assumed the role of a debt collector if they lost. He was sentenced in January to 18 years in jail for more than 100 charges, including organised crime and illegal gaming.

The reported numbers thus far paint a dire picture. Analysts figure that Macau’s casino industry racked up US$1.2 billion ($1.59 billion) in losses last year. Macau, which overtook Las Vegas as the global gaming capital in 2006, conceded this title to Sin City last year, with takings of just US$5.2 billion versus Las Vegas’ US$8.3 billion. At its pre-pandemic peak, Macau’s gaming revenue was as much as six times higher than its rival’s.

With the pandemic no longer a global medical and health emergency, luck seems to be returning to the only place in China where casinos are legal. In December 2022, Macau dismantled most of its pandemic controls and reopened its borders, following Beijing’s abrupt decision to abandon its zero-Covid policy.

Fitch believes Macau’s economy will rebound sharply by 48% in 2023 following a severe slump of 26.8% in 2022, “based on the cautious assumption that gaming revenue will recover to about half of the 2019 level”. Fitch expects the mass-market segment, which accounted for three-quarters of total gaming revenue in 2022, to drive the recovery.

The reopening was a welcome second wind for Macau’s six listed casino operators — Sands China, Wynn Macau, Galaxy Entertainment, MGM China, Melco Resorts & Entertainment and SJM Holdings — which were awarded new licences that run from Jan 1, 2023, to Dec 31, 2033. The renewed licences signal stability and continuity for the Macau operators, which have invested more than US$50 billion since 2002. Save for Nasdaq-listed Melco Resorts, the other five operators are listed in Hong Kong.

See also: China discovers adventure tourism

Besides the six incumbent players that managed to renew their licences, Malaysia’s Genting Group was also bidding for one, although it failed to get it.

If any incumbents had lost, they would have had to return their gaming floor to the government by the end of 2022, effectively a death sentence, as gambling accounts for 80% to 90% of total revenue.

Credit Suisse notes that the six operators will likely invest HK$100 billion ($16.88 billion) over the next decade in non-gaming elements. The analysts note that casinos will increasingly need to rely on mass-market tourists, who spend less than a fifth of what the high-rollers do.

See also: China must avoid a debt-deflation spiral

However, a full recovery could take some time; mass-market gaming revenue should be up to 55% of pre-pandemic levels by the end of 2023, reaching 85% by the end of 2024, according to Credit Suisse analysts in a January note.

On the other hand, UBS analysts, in contrast to their more bullish peers, predict Macau’s gambling revenue will only recover to 2019 pre-Covid levels near the end of this decade, no thanks to some curbs on social freedoms that will undermine the recovery. As the number of visitors drops, so will the money flow.

Meanwhile, Macau faces supply issues, like an ongoing manpower crunch, which will hamper a full recovery. According to Macau’s labour affairs bureau, more than 44,000 non-local employees have left since early 2020, leaving a gaping hole in the workforce.

A Bloomberg report in April states that some five-star hotels in Macau’s casinos have fewer than half of their rooms available for booking. Another operator has about one-fifth of its rooms out of commission, says Billy Song, president of the Macau Responsible Gaming Association.

“We didn’t expect the reopening would come so fast, so everybody’s struck unprepared,” Song tells Bloomberg. “After three dismal years, we all want to make the best of this year. But now that customers have come, we don’t have enough capacity to receive them.”

From Singapore to Macau

The Edge Singapore visited The Londoner Macao in March as part of a press junket organised by Sands Resorts Macao. Opened in 2021, The Londoner Macao completes the resort operator’s Europe-themed triptych, following The Venetian Macao’s 2007 debut and The Parisian Macao’s 2016 opening.

For more stories about where money flows, click here for Capital Section

The Londoner Macao began as the Sands Cotai Central in April 2012, operating for five years before Las Vegas Sands decided to spruce up the property with a London theme. Works began in 2019, and the property reopened to the public in February 2021, albeit only to domestic travellers.

The new resort houses four other hotel brands: the Londoner Court, Conrad Macao, St Regis Macao and the Sheraton Grand Macao, which, at 4,001 rooms, is the largest Sheraton in the world.

The visit was planned with Air Macau’s inaugural flight from Singapore on March 23. The flag carrier launched its new route with a onefor-one promotion, and visitors with an Air Macau boarding pass enjoyed discounts and privileges at major attractions, such as the Macau Grand Prix Museum, Skypark Macau Tower by AJ Hackett, and Macau Science Centre.

The partnership between Sands China and Air Macau stems from the Macau government’s tender process for the 10-year gaming licence. Bidders were asked to create various plans, including bringing in more customers from overseas, and pledge investment.

Such marketing efforts are for a good reason. Before the pandemic, Macau was overwhelmingly reliant on the Chinese tourism market, with mainland China and Hong Kong accounting for 89.6% of Macau’s 39.4 million visitor arrivals in 2019.

The industry trade show Global Gaming Expo Asia (G2E Asia) is set to return to the Marina Bay Sands from May 30 to June 1, following its Singapore debut in August 2022. The conference and exhibition have been held in Macau every year since 2007 but were cancelled in 2020 and 2021. In a first, G2E Asia will hold a second run at The Venetian Macao from July 11 to 13 this year.

Chinese interest remains strong

For now, Chinese visitors are keen to return to Macau. Between January and February, Macau welcomed close to three million visitors, with its largest source of travellers from mainland China.

Based on data, global flight bookings to Macau increased by more than 2,000% y-o-y from the start of the year to April 10. Meanwhile, flight bookings from Singapore skyrocketed 105 times, says the online travel agency.

Flight bookings from the Chinese mainland to Macau increased by 128% y-o-y over the same period. The top five tourist source cities are Shanghai, Hangzhou, Beijing, Nanjing and Xiamen. Hotel bookings in Macau also rose 49.6% y-o-y over the same period, with the top five source cities being Shanghai, Guangzhou, Beijing, Shenzhen and Foshan.

The May Day Golden Week, one of three week-long national holidays in mainland China, saw air ticket bookings surge 621% y-o-y from April 29 to May 5. Tourists from Shanghai, Beijing, Wuxi, Nanjing and Hangzhou were most keen on visiting Macau during this year’s May holiday.

The gains in May are building on growth already chalked up in 1Q2023, where Macau’s hotel occupancy rate rose 33.9 percentage points y-o-y to 74.7%, while the number of guests increased 96.3% y-o-y to 2.7 million.

In March, the number of hotel guests grew by 164% y-o-y to 972,000. Some 694,000 guests were from mainland China, while 186,000 were from Hong Kong and 13,000 were from Taiwan. Meanwhile, the average length of stay decreased by 0.2 nights to 1.6 nights.

According to Morgan Stanley in a May 17 report, air traffic between China and Macau is at just 60% of 2019’s. Yet mass gaming revenue is already near pre-pandemic levels. This suggests room for further growth when air traffic recovers to pre-pandemic levels.

Sands China will be the largest beneficiary of the impending base mass-market recovery, says UOB Kay Hian Research analyst Ng Jo Yee, following the return of mainland Chinese tours starting from the second half of 1Q2023 and with more premium mass customers attracted by newer properties.

In a May 3 note, Ng is keeping “buy” on the Hong Kong Stock Exchange-listed subsidiary of Las Vegas Sands, with a target price of HK$35. As of May 9, shares in Sands China are trading at HK$24.75.

In 1Q2023, Sands China saw higher spending per head and faster recovery in the premium mass gaming volume. It was operating at 62% of its hotel room inventory in 1Q2023, which is expected to improve to 86% in 2Q2023 and 97% in 3Q2023, writes Ng.

“We expect supply chain issues, such as limited non-gaming staff and inbound transport services, to be largely resolved before the summer peak season, further underpinning gross gaming revenue recovery moving forward,” Ng adds.

Citi Research analysts George Choi and Ryan Cheung believe Sands China deserves a target price of HK$37. Sands China is expected to generate above-industry ebitda growth with the ramp-up of The Londoner Macao, Choi and Cheung write in an April 20 note. The Citi analysts add that Sands China is the least impacted among the six operators by the closure of junket VIP operations across Macau.

Macau is back to its bustling self, and analysts are now positive about the stocks that will enjoy the exposure.

According to Bloomberg data, 19 analysts call for a “buy” versus six calling a “hold” on Galaxy Entertainment; there are nine “buys” and five “holds” for Melco Resorts and Entertainment; 11 “buys”, four “holds” and one “sell” for MGM China; seven “buys”, nine “holds” and one “sell” for SJM Holdings; nine “buys” and seven “holds” for Wynn Macau; and last but certainly not least, a whopping 21 “buys” and one “hold” and one “sell” each for Sands China.

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