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Goldman Sachs and JP Morgan optimistic about the prospects of Macau's gambling industry

No new cases of COVID-19 for 53 consecutive days

Goldman Sachs and JP Morgan have published a report eyeing Macau's tourism recovery. Goldman Sachs estimates that the epidemic will be controlled in the second quarter of this year, and tourism restrictions in Hong Kong and Macau as well as entry restrictions for residents in China Provence will gradually be relieved in the third quarter. They are both optimistic when it comes to the prospects of the gambling industry in Macau.

Goldman Sachs said that Hong Kong has experienced nearly a year of challenges, including the trade war between US and China, social unrest, the epidemic, and the recent resurgence of social pretest. However it is expected that the "V shape” rebound will

JP Morgan assumes that the annual EBITDA can be similar to last year.

appear in essential consumer goods; aviation, games, housing, offices, banking, insurance and trade/port industries . There will be a "U-shaped" rebound; durable consumer goods and offices in core locations as well as an "L-shaped" rebound when it comes to trends due to structural challenges.

JP Morgan pointed out that Macau's gambling revenue fell 93% year-on-year to 1.764 billion in May which was better than the expected decline of 95%. The average daily gambling revenue was approximately 57 million MOP, more than double that of the previous month. This was mainly due to the increase in the VIP lounge income. The bank also pointed out that Macao hasn't been diagnosed with any cases for 53 consecutive days. It is believed that restrictions can be lifted in mid-June. Among them, the entry of Guangdong China residents will be allowed to enter in the first phase.

JP Morgan assumes that the annual EBITDA can be similar to last year. The current valuation of the Macau gaming industry is equivalent to about 10 times the 2019 EV/EBITDA, which is lower than the historical average (12.5 times since 2012). The performance of the industry's stock prices has been roughly in sync with the HSI Index since the beginning of the year, but I believe that with the restrictions being relaxed in the next few weeks, the gambling stocks will outperform the market.


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