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Macau market cap to double by 2022: Morgan Stanley

Tuesday, 07 November 2017 05:40
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Macau’s market capitalization could double by 2022, with gross gaming revenue (GGR) growing at a CAGR of 10% to reach US$53 billion, according to Morgan Stanley analysts.

In a report titled Macau 2022 – Power of Compounding, the financial services firm suggests that Macau’s gaming industry has started a “new upcycle” driven by the impending completion of vital new infrastructure developments and rising spending growth, while the completion of new Cotai developments will reduce capex and ensure greater returns for investors.  

“We do a deep dive analysis of all the infrastructure developments, supply additions and Chinese spending power to conclude that Macau GGR could reach US$53 billion in 2022, growing at a 10% CAGR in our base case,” explain analysts Praveen Choudhary, Alex Poon, Thomas Allen, Mark Savino and Chaodan Zheng. “This is driven by 6% visitation and 5% spending growth.

“While Macau sometimes trades on weekly GGR, investors have been better served looking at much longer-term themes and trends. Usually, the stock cycle lasts three to five years and we think the current one has just started.

“Macau GGR grew in 2003-16 at a rate of 17% per annum due to low penetration, which remains the case even today (at 2% in Macau versus 13% in US). In this cycle, we think the quality of growth will be better, as more than 80% of the forecast profit should come from the mass market segment.

“We believe the sector market cap could grow to US$230 billion (double the current value) if the companies in our coverage universe are able to re-rate like Sands China or high-growth Asian REITs.”

In particular, the report predicts a smooth license renewal process for Macau’s six concessionaires, providing greater clarity by the time the issue is resolved in 2022, while new infrastructure is expected to provide a significant boost to visitation levels.

“We forecast Macau hotel room supply to reach 50,000 in the next five years from the current 36,000 (September 2017), which would be sufficient to accommodate six million more overnight visitors from current base of 15 million (40% increase),” it says.

“Infrastructure improvement, particularly the Hong Kong- Zhuhai-Macao bridge (HZMB) and extension of Guangzhou-Zhuhai Intercity Rail, should accelerate visitation growth from 2019 onwards and reach over 40 million by 2022e (2016: 31 million).

“HZMB should capture visitors of four to five million by 2022e, while Lotus Bridge (Cotai border) should see ~2 million in addition to the 2.3 million seen in 2016.”

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