It seems that several prominent investment analysts have recently paid special attention to the increasing costs of gaming sales of operators that manage casinos on the territory of Macau.
Yesterday, Cameron McKnight, Tiffany Lee, and Rich Cummings, analysts at Wells Fargo Securities, LLC, released a special note saying that “significant overhangs” in the administrative region might affect the gambling industry in the months to come. They also commented on the 1.7% unemployment rate in Macau, as well as on the fact that at present, dealers at casinos need to be residents of the city.
Karen Tang, an expert at Deutsche Bank AG, said in a note from Wednesday, which was issued almost immediately after Wynn Macau Ltd. posted its Q4 financial results, that there are evident costs pressures in the city.
A few weeks ago, a team of analysts at Morgan Stanley pointed out that operators of Macau-based casinos had already taken due measures to cut certain costs and thus, to cope with the increase in wage costs.
The Morgan Stanley experts also released notes on the quarterly financial performance of Wynn Macau and Sands China Ltd. The analysts stated that the margin erosion was probably caused by the increasing competition among casino operators to attract the Chinese players who are still willing to engage in gambling activities in Macau.
As previously reported, VIP gaming revenue in the city dropped by 29% for the fourth quarter of the fiscal year and the annual turnover from VIP players fell 10.9%.
In their note from January 30, the Morgan Stanley experts said that Sands China’s EBITDA margin from premium mass rooms was expected to drop to 25-30% in the fourth quarter of fiscal year 2014. This was due to the decrease in revenue generated from table games.
The research house also pointed out that the margin might further drop in 2015 and 2016, provided that The Parisian does not turn out to be as profitable as expected.
Yet, the Morgan Stanley analysts shared that Sands China is will probably be less influenced by the general withdrawal of VIP players than its rivals. It was estimated that a little less than 15% of the company’s EBITDA came from VIP players. What is more, it seems that the company’s EBIT (earnings before interest and taxes) grew by 12%.
Morgan Stanley’s comments on Wynn Macau’s performance, however, were not so positive. The research team pointed to the fact that the venue is highly dependent on its VIP players and this might pose serious risks to its operations in future.
It seems that the company’s staff costs had risen, while its EBITDA had decreased 26% as compared to the third quarter of 2014 and 36% as compared to what was posted a year ago.
