The Macau government is optimistic about the economic outlook for 2021. This was stated by Macau’s Economy and Finance Secretary Lei Wai Nong last week. The official said that this year China’s special administrative region expects to see rapid growth in its gross gaming revenue (GGR).

Last year was a total financial disaster for Macau. The covid-19 pandemic completely disrupted the tourism business and hit the hotel industry and the casino industry hard, two fundamental activities in the city.

Analysts do not doubt that Macau’s economic activity will improve, what is not known is how much and at what rate. But Morgan Stanley is not as optimistic as Lei. The US financial multinational lowered its previous estimate of Macau’s GGR for 2021.

The outlook for the financial advisory company for this year was down 10%. Now the new estimate places revenues at $ 23.7 billion, 65% of the total registered for the region last year.

VIPs are vital to Macau

Morgan Stanley analysts Praveen Choudhary, Thomas Allen and Gareth Leung, believe that the decline in VIP visitors will be a hurdle on Macau’s road to recovery in 2021. According to their forecasts, the revenue of VIPs starts from just one 40% of the total generated two years ago.

This forecast is more pessimistic than that of other analysts and the consensus of investors places it in the order of 70% approximately. By 2022 analysts predict that even the region could be below the income level of 2019.

The “VIPs will continue to drag the overall GGR down. While the macro [economic] indicators show rallies… the markets are leaving the field. Both Suncity and Tak Chun are taking stakes in casinos and diversifying beyond the pure junket business,” they said.

The macroeconomic indicators for Macao include the changes observed in the public policy agenda of the Chinese government. The war unleashed by the authorities against the promotion of gambling abroad, which would enter into force from march 1, does not cease to worry operators.

Analysts, however, note that efforts by local casino operators to cut their expenses since last year have had a positive effect on their balance sheets.

Less costs more benefits

The reduction in operating expenses, excluding VIP discounts, taxes and other expenses, was 39% year-on-year. Experts hope that this level of reduced spending will become the norm, as the benefits for operators will be seen in the long term.

Morgan Stanley analysts forecast that the economic slowdown in activity in Macau will extend into 2022. But it could be a year with further progress if traders decide to take the necessary precautions.

In 2022 there will be an increase of 8% compared to 2019, said Praveen Choudhary and the other analysts. This increase stems directly from the casinos reducing their costs and improving the performance of operations.

Analyst forecasts remain less than enthusiastic for investors who are holding stocks low.

“For 2H21, we expect to see the consensus estimates for 2022 to be too low. We are 5% above the consensus for 2022 EBITDA (earnings before interest, taxes, depreciation and amortization). Therefore, we recommend accumulating any weaknesses in 1Q21,” predicts Morgan Stanley.


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