Second quarter will be “worst quarter ever” for Macau: Morgan Stanley

Second quarter will be “worst quarter ever” for Macau: Morgan Stanley

Macau has been the highest gaming revenue generating region in the world in the recent years and COVID-19 lockdowns have left casinos in Macau with massive revenue loss. When Macau casino operators will release their second quarter (Q2) results, the figures will most likely be in the red, and analysts with the multinational financial firm Morgan Stanley foresee an EBITDA (earnings before interest, taxes, depreciation & amortization) loss of more than $1 billion for the quarter.

According to Morgan Stanley analysts Gareth Leung and Praveen Choudhary, the second quarter will likely be the “worst” quarter ever for the world’s leading casino hub, with casino operators’ combined loss of roughly $1.04 billion. The analysts also predicted that Sands China and Melco Resorts will account for almost 50 per cent of the estimated loss. The figure of quarterly loss for Sands China has been estimated at around $286 million, while Melco Resorts’ projected figure of loss stands at $205 million.

The recovery of any of the casino hub’s six operators will eventually be determined by its financial position, regardless of the impact of the COVID-19 pandemic. Investors are still having confidence and the stock performance of these companies suggests that investors are backing them for a comeback.

Foreseeing Macau casinos’ hefty Q2 losses, the analysts at Morgan Stanley said, “Macau stocks rose 21% in 2Q20, outperforming the Hang Seng Index by 15 percentage points; we think the market believes the worst is behind us and pent up demand and removal of overseas destinations as a choice could drive upside to estimates.”

While second quarter figures will also show who managed costs the most, and who lost the minimum as a proportion of enterprise worth.

For the second quarter of last year, Macau casinos had reported gross gaming revenue (GGR) of $2.4 billion, which almost completely vanished during the past three months as casinos remained closed due to the deadly COVID-19 pandemic that forced governments to impose travel restrictions in a bid to mitigate the deadly infection. In the month of June this year, casinos’ GGR slipped 97 per cent to just $89.7 million, making a huge impact on the city’s gaming-based economy. Since 1st of January, revenue at the city’s casinos has slipped 77.4 per cent.

The major dent in revenue at Macau casinos has been caused by strict travel restrictions. A few days ago, for instance, Hong Kong’s government extended its two-week quarantine policy for all people arriving from Macau. Similarly, people travelling from Macau to mainland China are required to self-isolate themselves for fourteen days.

As gaming revenue plays a key role in Macau’s economy, any decline in proceeds put a heavy strain on its financial system. In the current scenario, the local government will either have to impose ‘austerity’ measures on various social services or pressurize mainland China to lift border restrictions.