Morgan Stanley cuts Macau estimates as delayed room supply impacts mass growth

In a research note, Morgan Stanley analysts revealed revised GGR estimates of -3% for both FY19 and FY20, down from previous estimates of -1% in 2019 and +8% in 2020.

Notably, they anticipate negative GGR growth in November and December of this year as all segments struggle to meet earlier expectations.

“Many macroeconomic indicators are suggesting a VIP recovery between now and December, yet VIP revenue has deteriorated further in the past three months,” said analysts Praveen Choudhary and Thomas Allen.

“An even bigger concern is mass revenue, which has remained robust (more than 10% year-on-year in the first eight months) but could turn slower in 4Q19, to single digits.

“Our concerns include slower premium mass business (based on commentary by various operators, including Sands China and Wynn Macau), as well as slower growth in room nights sold, owing to delays in new hotel openings. We now forecast mass revenue growth of 7% in 2020 (vs 10% previously).”

While Morgan Stanley points to weaker VIP and a high 2018 base for the expected decline in November and December, it is the impact of delayed hotel room supply on mass revenues that is most telling.

“We are seeing a limited increase in hotel room supply,” the analysts said. “Since February 2018, when MGM China opened its Cotai project, there has not been much new supply, while Holiday Inn and Wynn Peninsula have been taking some rooms out of service for renovation.

“We have seen hotel room growth slow from 6.1% in mid-2018 to 0.8% in July 2019. With the delay in the opening of SJM Grand Lisboa Palace and Galaxy Phase 3 (both potentially opening in 1Q21), we see room growth staying closer to zero, thus hurting overnight visitor numbers to Macau.”