Investment bank Goldman Sachs said in a Sunday memo that it believes that most Macau casino operators “may not be able to resume dividend anytime soon,” due to “either stretched balance sheets or restrictions by debt covenants”.
The institution said examples were Sands China Ltd and SJM Holdings Ltd which would in likelihood not be able to pay dividends “at least until 2025,” or “thereafter,” given restrictions linked to their respective loans.
In May, Sands China had agreed to an 18-month extension of a dividend-restriction period as part of an amended and restated facility agreement worth circa US$2.49 billion.
Sands China’s parent company, U.S.-based Las Vegas Sands Corp, “commented the possibility of raising its equity stake in Sands China from currently 69 percent, should its stock price stay depressed,” stated Goldman Sachs.
The note was published following an investor tour on September 15 in Macau, where the institution said it visited all six casino operators and “various newly-opened properties”.
Galaxy Entertainment Group Ltd, which reported a first-half profit of HKD2.89 billion (US$369.0 million), was the only among the city’s six casino operators to declare a special dividend, amounting to HKD0.20 per share, payable on October 27.
According to the investment bank, Macau’s casino operators “still see further scope for GGR [gross gaming revenue] growth, benefitting from gradual visitation recovery from non-Guangdong tourists (only 51 percent of pre-Covid-19 level in second quarter 2023), as air tickets become more affordable with Chinese airlines still targeting to bring back 80 percent of their outbound flight capacity.”
“They also believe spending behaviours of their target clienteles (i.e., middle class who can afford losing HKD30,000 to HKD40,000 per trip) may not necessarily be as sensitive to [the] macro environment versus lower-income groups,” added the Goldman Sachs team.
The analysts said that while there “may be incremental concern over cost inflation” heading into next year, the institution maintained its belief that the Macau gaming industry’s earnings before interest, taxation, depreciation, and amortisation (EBITDA) “could return to 2019 level (i.e., US$9.1 billion) as long as the mass-market recovers to 110 percent to 120 percent of pre-Covid-19 levels”.
It said such level in terms of mass-market revenue was “not difficult to achieve given spillover effect from VIP after the removal of junkets and further infrastructure improvement ahead”.