Credit Suisse: Macau Recovery Slower than Previously Estimated

Macau, the former global gambling Mecca, is facing a slow recovery if projections from Credit Suisse are to become true: the investment bank estimates gross gaming revenue in 2024 will only reach 80% of the 2019 level.

Mass GGR Recovery Slower than Anticipated

Credit Suisse released the forecast in a note Wednesday, stating that the gambling industry in the Special Administrative Region (SAR) of China will not recover as fast as it has previously expected, revising its previous estimates.

In April, Credit Suisse stated that as recovery would not possibly begin before Q4, mass gross gaming revenue would reach 98% of 2019 levels while the VIP segment would account for roughly one-third of the pre-pandemic level.

Further, the investment bank slashed EBITDA forecasts for concessionaires by 19% to 53% and target prices by 15% to 60% and now the target price for Macau concessionaires was lowered to between 10% and 59% to take into account the weaker demand.

The reason behind the decision to lower the forecast was based on reports that China was doubling down on preventing cross-border gambling by introducing added restrictions on frequent gamblers. Mainland China authorities introduced a new set of visa restrictions in May to curb gambling appetite.

“We believe restrictions on frequent gamblers, especially outside of Guangdong, are going to stay amid China’s anti cross-border gaming effort, even if the COVID impact normalizes in the future,” wrote Credit Suisse analysts Kenneth Fong, Lok Kan Chan and Sardonna Fong.

The latest estimate assumes some border restriction relaxations will not happen before Q1 2023, the new tax rate hike for concessionaires of 1% from the contributions to the Macau Foundation and the construction, tourism and social security fund, as well as the low margin for mass gambling due to the higher level of expenses related to leisure players.

Investors Advised to Stay on the Sidelines

Arguing that the downside is already limited as the market “stops reacting to negative news with low expectation,” Fong, Chan and Fong believe the industry “lacks catalysts with minimal earnings near term.”

“While long-term investors may choose to accumulate and wait, a higher risk-free rate now and highly uncertain recovery timing make it strategically less attractive,” the trio concluded, suggesting investors should wait for “more solid signs” of a sustainable recovery, reminding them that a gaming cycle rally usually lasts for around a year-and-a-half.

The Credit Suisse memo was released shortly after authorities in Macau reported daily foreign visitations on Tuesday sank by 99.7% on the 2019 average as just 330 tourists entered the SAR due to the ongoing COVID-19 outbreak.