Renewed Travel Good News for Macau Gaming

Macau gaming operators hope for increased footfall and revenues as China makes plans to resume individual and group travel from the mainland. The doors could open by the end of the month.

In welcome news for Macau gaming operators, the Chinese government has announced it will green-light individual exit visas and group tours from the mainland, perhaps as soon as the end of October.

The announcement, made September 24, boosted gaming stocks in the Hong Kong market. By the close of trading the following Monday, shares associated with all six casino operators were up, with Sands China enjoying the biggest spike at 15.7 percent. SJM Holdings rose by nearly 11.6 percent, and share prices for Wynn Macau jumped 11.1 percent, according to GGRAsia.

At the end of the day on September 26, Galaxy Entertainment Group was up 7.2 percent, and Melco International Development, parent of U.S.-listed Melco Resorts and Entertainment, saw an increase of 5.3 percent. MGM China Holdings brought up the rear at 4.7 percent.

Macau Chief Executive Ho Iat Seng predicted that visitor volume from the mainland could soar to 40,000 per day once travel resumes. Tourism to the city has suffered since the beginning of the Covid-19 pandemic in early 2020. The daily average in 2019, before the pandemic, was 108,000, with 76,000 tourists from the mainland and 20,000 from Hong Kong. In a recent note, brokerage Morgan Stanley said that of those 76,000 mainland visitors, 47 percent came on individual visas and 23 percent used package tours.

“Assuming package tours and IVS eVisas are relaxed in October, we think mainland visitation could reach 45 percent of the 2019 level and mass revenue 60 percent,” the note said.

Beijing’s strict zero-Covid policy shut down travel to and from Macau when even small viral clusters were identified, depressing the gaming industry, which provides the lion’s share—up to 80 percent—of revenues to the special administrative region (SAR). Tours and eVisas were suspended at the start of the pandemic in early 2020.

The challenges created by that scenario may soon be in the past. JP Morgan analyst DS Kim called Ho’s announcement “great news” and a long-waited “path to normalcy.”

“We believe the resumption of eVisa and group tours should alleviate friction for a Macau trip, as well as signal to many that it’s okay to visit Macau, in turn boosting demand into the year-end holidays and 2023. Finally, we feel we can talk about a return to normalcy,” wrote Kim.

He added that Macau casino operators could return to positive EBITDA by the fourth quarter, barring future shutdowns.

The long-awaited positive news came just weeks after Macau began to reopen travel to international visitors. People from 41 countries are now permitted to enter, but still must undergo seven days of hotel quarantine and three days of self-monitoring at their place of residence.

While Hong Kong has announced it is ending its hotel quarantine requirement, Ho said Macau won’t rush to follow. He said, “Macau must maintain the same approach to epidemic prevention as the mainland in order to be recognized by the mainland.”

Kim added, “Most operators can turn EBITDA positive when mass GGR hits around 30 percent to 35 percent of pre-Covid levels, indicating some companies can start to print positive profits from 4Q. … We thus expect all operators can be free-cash flow positive by 2Q23, so we probably don’t need to worry about ‘liquidity runway’ anymore.” He excluded SJM from the group, due to expenses associated with the opening of Grand Lisboa Palace. “The timing/magnitude of easing is earlier/better than expected, adding conviction to our bullish stance on Macau gaming,” Kim said.

Despite the positive news, the head of Macau’s tourism bureau has expressed caution about visitation during Golden Week, which began October 1. Maria Helena de Senna Fernandes, director of the Macao Government Tourism Office (MGTO), said she doesn’t anticipate a “surge” in tourism during the national holiday.

Macau gaming revenue hit a peak of $45 billion in 2013. In pre-pandemic 2019, casinos in the SAR produced $36.6 billion in gaming revenue. A year later, the pandemic sent Macau gaming revenue tumbling to $7.56 billion, its lowest figure in 14 years.

For the first eight months of 2022, Macau’s gaming revenue is almost $3.6 billion, down 53.3 percent from 2021, when casinos collected $10.8 billion. And through August, Macau saw just 3.8 million visitors, an 86 percent drop from 2019.

The new travel policy “signals that it’s fine for Mainland Chinese to travel to Macau,” said J.P. Morgan gaming analyst Joe Greff. “Of course, there likely will be fits and starts with Covid outbreaks, but this news has to be a positive for a sector that has experienced massive multi-year underperformance where (investor) sentiment can be described as negative to apathetic.”

Las Vegas Sands and Wynn Resorts shares increased more than 11 percent on news that travel from the mainland would resume.