Macau casino closure to see 75% decline in February GGR, 6% reduction through FY20 - IAG

Tuesday 4th February 2020

The decision by the Macau SAR Government to shutter Macau's casino industry for the next 15 days will likely see the city's gross gaming revenue plunge by around 75% year-on-year in January and shave 6% off full 2020 GGR.

While the full impact of the unprecedented closures is still difficult to predict, according to JP Morgan's DS Kim, Derek Choi and Jeremy An, early estimates paint an unsurprisingly bleak picture with the analysts noting that casinos are a "revenue business" and there "isn't much that operators can do to mitigate such extreme declines in revenue.

"February GGR is expected to drop roughly 75% to US$700 million (vs US$2.8 billion originally), which in turn would reduce our annual GGR by ~6%," they said in a Tuesday note.

"Our analysis suggests a 75% cut in February GGR would reduce our annual EBITDA by ~10% given negative operating leverage."

JP Morgan added the local industry is set to incur a US$300 million EBITDA loss in February, around US$1 billion less than pre-virus estimates of a US$700 million gain.

Brokerage Bernstein issued a note earlier on Tuesday, before the government confirmed full details of the casino closures, in which it painted a similarly grim picture.

"Whatever the details of the temporary shutdown are, Q1 is obviously going to show awful results," said analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu.

"Assuming only a two-week shutdown followed by some soft business resuming in late February and March, Q1 could show GGR year-on-year decline of 50%. If casinos were to remain closed for the rest of Q1, GGR would show a year-on-year decline of over 70%."

Bernstein did, however, suggest a rapid recovery for Macau casino's casino operators upon resumption of full trade.

"There are mixed views on how virulent and lethal this outbreak may be (so far, contagion is much worse than SARS, but mortality is materially lower)," they said.

"At this stage we see Macau having a solid recovery in 2H, with recovery contingent on 1) the contagion being brought under control and travel into Macau resuming, and 2) China's economy not faltering materially and reducing customer confidence.

"The latter would likely be abated by strong government stimulus if the economy were to falter."

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