Macau Can Expect Stable Q4 EBITDA Growth

Macau’s six concessionaires are expected to report a 6% increase in aggregate Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) for the fourth quarter of 2023, with SJM Holdings and Wynn Macau leading the way. The casino resorts must adapt to rapidly shifting industry trends, but 2024 should present more opportunities than challenges, helping the region regain some of its former lustre.

Market Share Shifts Should Not Impact the Broader Industry

In a recent report, Citi analysts George Choi and Ryan Cheung suggested that despite Sands China and Galaxy Entertainment experiencing a decline in market share, rivals such as SJM Holdings and Wynn Macau benefited from this attrition, leading to an overall 6% increase in EBITDA for the sector. These estimations roughly align with ongoing trends amidst Macau’s journey to recovery.

The Macau operators’ combined gross gaming revenue (GGR) for 2023 reached $22.7 billion, a notable increase compared to the pandemic-affected period but still below the 2019 high of $36.3 billion. Analysts see significant potential for Macau’s gambling and hospitality sector throughout 2024, hinging on the region’s ongoing adaptations to the current economic realities.

Even though we believe most of the market share changes in Q4 were driven by luck, the short-term market share gains will likely translate into more resilient EBITDA margins.

Citi analysts George Choi and Ryan Cheung

The experts believe the industry EBITDA margin for Q4 2023 will remain unchanged quarter-on-quarter at around 28.5%. They attribute the recent volatility in EBITDA margins more to market share changes than the amount spent on player reinvestments. Still, they are confident that operators that capitalize on these trends should gain a boost to their share prices.

Macau Will Attempt to Maintain Its 2023 Momentum

SJM and Wynn Macau will likely lead the EBITDA improvements in Q4. Notably, both companies have shifted their focus away from VIPs, aligning with the current challenges facing Macau’s junket industry. Instead, they have successfully catered to premium mass players, considered a more resilient demographic than standard mass bettors due to their more favorable spending patterns.

Despite a challenging 2023 for Macau casino stocks, with only MGM China posting positive returns and others experiencing double-digit declines, Citi remains bullish on the sector. The bank has raised price targets on Melco, MGM China, SJM Holdings, and Wynn Macau while maintaining a positive long-term outlook on Galaxy and Sands China.

Such ongoing trends reflect broader challenges and opportunities for Macau as the region attempts to reinvent itself, betting on a more comprehensive leisure experience. Despite continued investments in non-gambling projects, its high-profile casino resorts remain the primary driving force behind its tourism sector, and their performance is paramount to future success.