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Morgan Stanley Does Not Share Enthusiasm Over Macau’s GGR Recovery

Article by : Helen Jan 22, 2021

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Updated: Aug 10, 2022

Lei Wai Nong, Secretary for Economy and Finance of Macau, believes that 2021 will be a much promising and better year for Macau and its gambling industry since gross gaming revenue has already started recovering at a good pace. Like all other cities with legalized gambling, Macau took a strong hit from the coronavirus pandemic. Its gambling venues were closed for a couple of months and suffered from capacity restrictions. Now, Lei asserts that things can only get better from this point, but when exactly the industry will get back to everyday life still remains a question. He is determined to help Macau’s gambling industry recover as soon as possible.

We need to improve our services and products to make our visitors feel welcome and warm, and to attract them to visit Macau again.

Morgan Stanley, an American multinational investment bank, does not seem to be as enthusiastic as Lei, having changed its initial expectations on how things will go for Macau in 2021.

Considering that 2020 turned out to be the worst year for Macau, the financial corporation analysts pushed down their estimate for 2021 by 5% to around $US23.7 billion, which is almost 65% of what Macau saw in 2019. Praveen Choudhary, Thomas Allen, and Gareth Leung claim that due to the small traffic of VIP gamblers, 2021 figures will be not as optimistic as Macau expects. According to the latest forecast from the financial giant, VIP gambling revenue might be half of what it was in 2019 or even less. These expectations are much worse than what investors predict, with all of them sticking to around 70%. More than that, the analyst adds that the next year might not even reach the results recorded in 2019.

The analysts pointed out: “VIP will continue to drag overall GGR down. While macroeconomic indicators are showing upticks… junkets are leaving the field.” When taking a closer look at the microeconomic indicators, it’s not that difficult to notice that they reflect some upcoming domestic Chinese policy changes, including the limitations on the overseas gambling advertising that is supposed to take place in March 2021. Lei Wai Nong previously mentioned that Macau has already made some gambling law adjustments. They will keep an eye on the upcoming changes to Chinese law so that the Macau gambling industry could provide a healthy gambling environment.

There a good piece of news as well. The analysts also assert that the reduced gambling expenses will definitely be paying off to the casino operators. The figures indicate that operating expenses reduced by almost 40% year-on-year. The analysts believe that such a reduced level of expenses will turn into the new normal level, which, in turn, will open new opportunities for Macau and its casino operators in the long-term period of time.

Praveen Choudhary said that casino operators should take all the required precautionary measures if they want to make 2022 a better year. According to the latest analysts’ predictions, there will be an 8% increase in 2022 compared to 2019, which will depend directly on how the gambling venues will reduce their expenses and improve operations. Anyway, these predictions do not sound promising for major investors, as stocks remain rather limp. That’s why Morgan Stanley claims: “By the second half of 2021, we expect to see that 2022 consensus estimates are too low. We are 5% higher than the consensus for 2022 EBITDA. Thus, we recommend accumulating on any weakness in Q1 2021.”

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