- How entry to Macau might be barring profits
- The impact of COVID-19 pandemic on operations
- What does Macau’s future look like?
Macau relied heavily on gamblers playing the mass-market as China continues to crack down on gambling across their borders, resulting in one of their worst financial years yet.
Yearly revenue in the Macau region dropped by 79% to 60.4 billion in 2020, with a 66% decline to 7.83 billion in December alone (based on the previous year).
Macau entry isn’t easy
China has been growing tougher on cross-border gambling, and it remains difficult to actually obtain entry into the Macau region, owing to a time-consuming form and travel restrictions implemented due to the COVID-19 pandemic. Right now, people can enter Macau from mainland China, Hong Kong, and Taiwan.
Analysts expect Macau’s revenue to hit about 80% of their 2019 revenue, with analysts and those who work in the casino industry alike expecting a comeback later this year. It’s worth noting that Macau hasn’t seen a case of COVID-19 in 6 months, which is one of the longest case-free streaks across the globe. This could be a good sign that casinos in the area are well-poised to return to business as usual.
Macau remains the only place to gamble on-land (legally) in China.
Debt soars for Macau groups
Soaring debts aren’t helping recovery in the Macau region, either. Melco Reports & Entertainment, member of the special administrative region of Macau is likely to see their debt grow over the next year, as growth in Macau moves slowly.
One of their Melco’s operations, City of Dreams, received notes from the firm Moody’s Investors Service, which rated their bonds (that mature in 2029) as a bad outlook, which point “speculative elements and are subject to substantial credit risk.” Melco’s operations also include the Macau properties Studio City, Altira Macau, and Mocha Clubs.
How do they determine ratings? Sean Hwang, Assistant Vice President & Analyst at Moody’s says “The Ba2 ratings reflect the group’s established operations and high-quality assets under its parent, Melco Resorts & Entertainment Limited (MRE), which counterbalance its geographic concentration in Macao SAR’s gaming market.”
Melco Resorts & Entertainment reported a negative $221 million EBITDA in the first months of 2020 — compared to a positive $1.2 billion EBITDA just one year before. However, they’re expected to see a slow 2021, with recovery on the horizon in 2022-23.
So, what does Macau’s future hold? Though an uptick is expected in the coming years, some professionals say it might take years for operations in Macau to return to normal levels. Analyst’s from Morgan Stanley note that operating costs are down in Macau by 39%. With a crack-down on casino junkets in China, Macau will have to rely on VIP gamblers to reach past revenue levels.
One of the biggest indicators of Macau’s future will be whether or not travel restrictions loosen, and tourists are able to gamble. This will also likely impact Macau stock, along with whatever government policies determine how people can travel in and out of the region.