Forecasting Negative EBTIDA, JP Morgan Securities Reports Slumping Margins For Macau Casinos

Forecasting Negative EBTIDA, JP Morgan Securities Reports Slumping Margins For Macau Casinos

Analysts from JP Morgan Securities (Asia Pacific) have voiced their concerns over the consistently plummeting margins in the Macau gaming industry. Despite a rise in revenue, the margins have continuously suffered; now for nine months consecutively. Citing the downward trend of margins in the Macau gaming industry, JP Morgan Securities’ analysts forecast a negative EBITDA (earnings before interest, taxes, depreciation, and amortization) for the first and second quarter of 2019 for Macau Casinos. What is concerning is the fact that they don’t see any positive indicators which can trigger increasing returns and better margins.

Two top JP Morgan analysts DS Kim and Sean Zhuang were reported to have said that “For the first time in these three years, we forecast industry EBITDA to print negative growth both quarter-on-quarter and year-on-year in the first quarter to second quarter of 2019, driven not only by anemic GGR [gross gaming revenue] momentum (expected), but also by relatively soft margins (lesser-known).”

The analysts have also denied that there could be any near-term positive gains in the GGR, emphasizing that it was challenging to compare growth for the month of April and March. Further, they said: “The impact of rising operating expense could be felt more acutely this year, where top-line growth will likely slow materially to flat to negative (versus +14% in 2018).”

Apart from the tanking margins, the analysts base their predictions on many other factors including the fact that Spring dinners hosted by junket operators – often claimed to be reflecting VIP play volumes – was calmer this February in comparison with March last year.

Talking about the first quarter earnings of the Macau gaming industry which is not coming out before April, the analysts warned that it “could print negative growth (albeit small) for the first time in three years,” and also asserted that they sense a short-term breather coming for Macau stocks.

Predicting the GGR forecast for the entire year of 2019 – which may be a bit too early to get into – the analysts held on to their earlier predictions claiming that it will stick to around 1%. Explaining their position on the 2019 projections, they said: “We keep our industry GGR assumptions unchanged at -1% for full-year 2019, with +5% growth in mass, versus – 7% decline in VIP. We assume GGR growth will recover in full-year, led by +9% in mass and +7% in VIP, amidst the opening of SJM’s Grand Lisboa Palace (and to a lesser degree Galaxy Macau Phase 3).”

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