Over 50 Percent Upside for Macau Gaming Sector on Strong 2Q Recovery – JP Morgan

MACAU, SAR (July 5, 2023) — JP Morgan analysts DS Kim and Mufan Shi have released a report predicting over 50 per cent potential upside for the Macau gaming sector due to strong gross gaming revenue (GGR) recovery in June and 2Q.

The Macau News Agency (MNA) reported the analysts believe that Macau is undervalued at the current price of 9x EV/EBITDA, which is close to trough levels, and that the upcoming 2Q earnings will reveal all-time high margins and encouraging commentary.

Kim and Shi have maintained their bullish stance on Macau, ranking Galaxy and Sands as top picks, followed by Melco, MGM, Wynn, and SJM.

The report highlights that mass-market GGR has recovered to nearly 90 per cent in the second quarter 2023, up from 67 per cent in the first quarter, which they consider impressive in terms of both pace and quality.

The investment bank’s analysts forecast sector EBITDA to increase 47 per cent quarter on quarter to US$1.7 billion (MOP13.7 billion), representing 73 per cent of the levels recorded in the second quarter of 2019.

They also expect all-time high margins of 26 per cent due to mix improvement and cost savings. The strong financial performance in the second quarter marks the first quarter in over three years that every operator generated substantial free cash flows.

While the analysts are cautious about deteriorating macro conditions, they believe the risks to their above-Street numbers may actually be on the upside. They also note that the sector’s biggest regulatory risks, such as “licence overhang” and “VIP/junket clamp-down”, have been removed.

The recent 9 per cent pullback in stock prices, despite significant beats and earnings upgrades, presents a great buying opportunity for investors focusing on fundamentals, they said.

SOURCE: Macau News Agency (MNA).