MGM China leads recovery of casino operators in Macau

Chinese arm of US gaming giant MGM and Hong Kong casino mogul Lawrence Ho’s Melco have emerged stronger from the zero-Covid policy era than their rivals, according to earnings reports from Macau’s Big Six operators.

MGM China and Melco Resorts showed the best recoveries, although both reported revenues fell more than 75 percent last year from 2019. Combined revenue for the six of about $6.7 billion in 2022 was 80 percent lower than in 2019, which preceded three years of tight business and travel restrictions in the only part of China where casino gambling is allowed is.

The pair’s better performance was reflected in their stock prices. Shares in Hong Kong-listed MGM China are up 114 percent over the past six months, while US-listed Melco Resorts is up 144 percent and Hong Kong-listed parent company Melco International is up 81 percent. The other four — Galaxy Entertainment, Sands China, Wynn Macau, and SJM Holdings — posted gains of between 23 percent and 55 percent.

Most of the pandemic restrictions that caused casinos to be temporarily closed last year were lifted by Macau in December and its mask mandate was dropped last month. Melco was also helped by reviving its casino operations in the Philippines and Cyprus.

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DS Kim, an analyst covering the gaming sector for JPMorgan, predicted that Macau’s total gross gaming revenue could return to more than 50 percent of pre-Covid levels by the end of 2023. He said a better-than-expected 33 percent year-on-year increase in February showed that a strong January hit wasn’t just a “week-long miracle” from the Lunar New Year celebrations.

MGM China’s gross gaming revenue market share was about 16 percent as of January this year, which Kim said was “well above the 9-10 percent level seen in 2019.”

“The company has gained stakes in both mass and direct VIPs so far in the post-Covid recovery,” he wrote in a note, referring to mass-market and high-stakes players. “We believe in the market. . . significant [under-appreciated] the pace and magnitude of demand recovery in Macau.”

MGM Resorts CEO Bill Hornbuckle said during a conference call that the company plans to capture more market share by adding nearly 200 gaming tables to a total of about 750 at its casinos. This would be part of the new agreement with local authorities, with all six incumbent operators renewing their concessions for a 10-year period in January.

According to a market source familiar with the matter, MGM China also opened two new gambling zones dedicated to foreigners last month to attract more overseas visitors in the post-Covid era.

However, Covid has still left a financial legacy. Melco’s Ho, on an earnings call, said his biggest regret during Covid was: “We had to . . .[take]on a lot of debt”. “The company’s number one goal for the next two to three years is really to deliver and pay off debt,” he said.

Melco reported total debt of $8.4 billion late last year, up from about $4.4 billion in 2019. On Thursday, the company said it had bought $170 million worth of stock from its parent company will buy back Melco International.

Wynn Macau, the worst-performing Big Six in 2022 in terms of revenue with a 52 percent year-on-year decline, this month announced a plan to issue $600 million in convertible bonds maturing in 2029.

Additional reporting by William Langley and Gloria Li in Hong Kong