Morgan Stanley: Macau 2023 GGR and EBITDA Revised Upwards

Gambling industry analysts at Morgan Stanley believe that gambling in Macau is on the way to recovering, raising its gross gambling revenue (GGR) estimate for 2023 by 42% and 2023 EBITDA estimate by 70%.

Better Product Mix, Higher Margins

According to the note released by Morgan Stanley on Monday, the gambling industry in the Special Administrative Region (SAR) of China is about to deliver $22 billion in GGR and $5.8 billion in EBITDA in 2023. The new 2023 EBITDA estimate still falls short of the $9.3 billion in EBITDA in 2019 but is 30% above the industry consensus of $4.5 billion.

The main factors analysts Praveen Choudhary, Gareth Leung and Stephen Grambling cited for raising the 2023 GGR and EBITDA estimates are the better product mix and higher margins due to the return of Chinese customers.

Further, the investment bank estimates that there should be further industry improvements in 2024 when EBITDA will reach $9.6 billion to surpass the 2019 level mainly due to the revenue mix. For 2024, Morgan Stanley’s estimate is 17% above the industry consensus.

Justifying the revised estimates, Morgan Stanley analysts stated that the reopening of China resulted in additional revenue and profit for Macau operators in the first two months of the year which was not factored in the previous calculations as it was not expected.

Mass to Trigger Operating Leverage

Analysts believe that the sustainability of premium mass will be key to achieving pre-pandemic EBITDA levels in 2024 in the absence of junket business, claiming “that EBITDA margin will be 500 bps higher than in 2019 mainly due to operating leverage resulting from mass gaming reaching a certain level.

The team of analysts outlined two main reasons why their revised estimates for 2023 and 2024 are significantly higher than the industry consensus: the historical correlation of Macau’s mass segment with China’s nominal GDP, which exceeded in 2022 by more than 20% the 2019 level and could maintain a pace of between 4% to 5% annually going forward, and the infrastructure improvements related to the larger customs checkpoints and increase in hotel rooms by 4,000 new rooms during the pandemic.

Morgan Stanley analysts concluded that due to the revenue mix improvement EBITDA margin in 2024 could increase to 28%, as compared to 23% in 2019.

Earlier in the month, data released from the Macau government revealed that the casino industry in the SAR generated MOP11.58 billion ($1.44 billion) in January, an increase of 82.5% year-over-year and its highest monthly in three years, sparking optimism that a solid industry recovery is underway.