The continuing impacts of the coronavirus pandemic have reportedly prompted global brokerage and investments firm Morgan Stanley to lower its predicted 2021 aggregated gross gaming revenues forecast for Macau.
According to a report from GGRAsia, the financial services giant revealed that it now expects casinos in the former Portuguese enclave to bring in combined annual gaming revenues in the region of $16.3 billion, which is some 19% lower than its previous forecast. The source detailed that this downgrading comes as local government officials continue to enforce a range of coronavirus-related restrictions for those travelling between Macau, Hong Kong and mainland China.
High hopes:
Macau is currently home to 41 casinos including the iconic Casino Grand Lisboa from local behemoth SJM Holdings Limited and last year reportedly chalked up disappointing aggregated gross gaming revenues owing to the disruption of the coronavirus pandemic of approximately $7.5 billion. The subsequent easing of many restrictions purportedly prompted Morgan Stanley to earlier explain that it expected the final figure for 2021 to represent an improvement of about 168% year-on-year although its revised forecast now equates to an expansion of only 117%.
Procrastination problems:
Morgan Stanley analysts Thomas Allen, Gareth Leung and Praveen Choudhary reportedly used an official Sunday filing to declare that the enclave’s casinos are still waiting for revenues and profits to ‘normalize’ following over 26 months of coronavirus-related disruption. For this to occur, the trio purportedly divulged that Macau needs to reinstate the electronic application system for Individual Visa Scheme (IVS) exit passes, resume its issuance of group travel visas and begin allowing people from Hong Kong and mainland China to freely enter and leave its territory.
Earnings expectations:
The three experts reportedly went on to disclose that they expect such steps to occur during the second half the year so as to moreover allow casino operators in Macau to post aggregated annual earnings before interest, tax, depreciation and amortization of around $2.8 billion, which represents an almost 37% diminution on their previous forecast of $4.6 billion. The city’s gambling properties purportedly saw their combined returns for 2019 hit $9.2 billion while the latest prediction envisions the 2022 tally having rebounded to reach almost $9.3 billion.
Credit culpability:
However, the Morgan Stanley analysts reportedly furthermore advised caution by asserting that casino operators in Macau had together raised in excess of $8.5 billion in new debt since the start of the coronavirus pandemic featuring an average 5% interest rate. The trio purportedly pronounced that this fresh capital is subsequently set to incur over $400 million in annualized interest charges moving forward, which represents in the region of 5.5% of the sector’s 2019 free cash flow-to-equity ratio.
Reportedly read a statement from Allen, Leung and Choudhary…
“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.”