20220926-招银国际-CMBI_Credit_Commentary_Macau_gaming__Meaningful_policy_relaxations_to_double_visitation_3页_449kb

CMBI Credit Commentary Summary

Core Content

The CMBI Credit Commentary discusses the potential positive impact of recent policy changes on the Macau gaming sector, particularly on the performance of Macau gaming bonds. It highlights the resumption of package tours and the introduction of electronic visa issuance, which are expected to significantly boost tourist visitation and, consequently, gaming revenue. The commentary also provides an outlook on the financial health of major gaming operators and the upcoming license renewal process.

Main Points

• Policy Relaxations: The Macau government has agreed with the Chinese government to resume package tours for mainland Chinese visitors and introduce electronic visa issuance. These changes are anticipated to be implemented by the end of October or early November 2022.
• Expected Impact: The new policies are expected to increase daily visitation from mainland China to 40,000, doubling the current level. This is projected to lead to a 60-70% increase in visitation and a corresponding rise in gaming revenue, potentially reversing the trend of cash burn for most operators.
• Recommendation: The commentary recommends buying Macau gaming bonds, with a preference order of SJMHOL > STDCTY/STCITY > MPEL > WYNMAC. This is based on the risk and return profiles of each operator.
• EBITDA Outlook: Most gaming operators are expected to turn positive EBITDA by 1H23, which would improve their funding environment and reduce near-term default risk.
• License Renewals: The preliminary decision on new casino concessions will be announced in November 2022. The base case assumes that six incumbents will have their licenses renewed due to the tight timeline and the minimal economic and political impact of simple renewal.
• Geopolitical Considerations: The commentary notes that operators with US investors are not more exposed to license renewal risks, as the Chinese government has a strong incentive to maintain support from the US business sector.

Key Information

• Visitation Statistics:
  • In 2021, mainland Chinese accounted for 91.4% of tourist visitation in Macau.
  • Before the pandemic, mainland Chinese accounted for 70.9% of tourist visitation.
• Policy Priorities:
  • Package tours will prioritize residents from Guangdong, Zhejiang, Jiangsu, Fujian, and Shanghai, which together account for 60% of visitations.
• E-Visa Implementation:
  • Mainland Chinese can now obtain instant visa approval through automated kiosks.
• Financial Metrics (LTM to June 2022):
  • SJMHOL: Gross Profit = 625.5 MOP, Cash Burn = 1725-1788 MOP, Liquidity = 18.2-18.8 months
  • Melco: Gross Profit = 441.0 MOP, Cash Burn = 2357.6 MOP, Liquidity = 16.5 months
  • Studio City: Gross Profit = 28.5 MOP, Cash Burn = 859.4 MOP, Liquidity = 13.7 months
  • Sands: Gross Profit = 1449.0 MOP, Cash Burn = 3652-3752 MOP, Liquidity = 13.6-14 months
  • Wynn: Gross Profit = 628.2 MOP, Cash Burn = 2109-2129 MOP, Liquidity = 13.8-13.9 months
  • MGM: Gross Profit = 567.2 MOP, Cash Burn = 1821-1836 MOP, Liquidity = 16.5-16.7 months

Conclusion

The resumption of package tours and e-visa issuance are seen as significant positive catalysts for the Macau gaming sector. These policy changes are expected to reverse the cash burn trend and improve the financial performance of gaming operators. The commentary also highlights the importance of license renewals in maintaining the sector's stability and the minimal risk associated with renewing existing licenses.

Author Information

• Glenn Ko, CFA
  Email: glennko@cmbi.com.hk
  Tel: (852) 3657 6235

• Cyrena Ng, CPA
  Email: cyrenang@cmbi.com.hk
  Tel: (852) 3900 0801

Department: Fixed Income Department
Company: CMB International Global Markets Limited
Parent Company: CMB International Capital Corporation Limited
Affiliation: A wholly owned subsidiary of China Merchants Bank

Important Disclosures

• Investment Risk: There are risks involved in transacting in any securities. The information in this report is not suitable for all investors and is not tailored to individual circumstances.
• No Liability: CMBIGM is not liable for any loss, damage, or expense incurred in reliance on the information provided.
• Confidentiality: The report is for the use of intended recipients only and may not be reproduced, reprinted, sold, redistributed, or published without prior written consent.
• Jurisdictional Restrictions:
  • United Kingdom: Only for persons within Article 19(5) or Article 49(2)(a) to (d) of the Financial Services and Markets Act 2000.
  • United States: Intended solely for "major US institutional investors" and not for general distribution.
  • Singapore: Distributed by CMBI (Singapore) Pte. Limited, an Exempt Financial Adviser, to specific categories of investors.