MGM China leads casino operator recovery in Macau

The 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 the Big Six operators in Macau.

MGM China and Melco Resorts revealed the best recovery, even though both reported revenues last year were down more than 75 per cent on 2019. Combined revenues for the six of about $6.7bn in 2022 were 80 per cent lower than in 2019, which preceded three years of tough restrictions on business and travel to the only part of China where casino gambling is allowed.

The pair’s better performance has been reflected in their share prices. Hong Kong-listed MGM China’s stock has jumped 114 per cent over the past six months, while US-listed Melco Resorts climbed by 144 per cent, and its Hong Kong-listed parent company, Melco International, rose 81 per cent. The other four — Galaxy Entertainment, Sands China, Wynn Macau and SJM Holdings — saw share price increases of between 23 and 55 per cent.

Most pandemic restrictions, which led to casinos temporarily shutting last year, were lifted by Macau in December and its mask mandate was dropped last month. Melco was also helped by revivals for its casino businesses in the Philippines and Cyprus.

DS Kim, an analyst covering the gaming sector for JPMorgan, predicted Macau’s overall gross gaming revenue could return to more than 50 per cent of pre-Covid levels by the end of 2023. He said a better than expected 33 per cent year-on-year rise in February showed a strong January beat was not just a “one-week wonder” from the lunar new year celebrations.

MGM China’s gross gaming revenue market share was about 16 per cent in January this year, which Kim said was “significantly ahead of 9 to 10 per cent levels back in 2019”.

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

MGM Resorts chief executive Bill Hornbuckle said during an earnings call that the company was planning to push for more market share by adding nearly 200 gaming tables to a total of about 750 across its casinos. This would be part of its new agreement with local authorities, with all six incumbents having their concessions renewed in January for a 10-year period.

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

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

Melco reported total debt of $8.4bn by the end of last year, up from about $4.4bn in 2019. It said on Thursday it would repurchase $170mn in shares from its parent Melco International.

Wynn Macau, which performed the worst in 2022 among the Big Six in terms of revenue, with a 52 per cent year-on-year fall, this month announced a plan to issue $600mn worth of convertible bonds due in 2029.

Additional reporting by William Langley and Gloria Li in Hong Kong