Macau’s 15Q2 EBITDA to drop amid higher operating costs

Macau’s operators are likely to see a decline of about 14 percent quarter-on-quarter and 42 percent year-on-year in their Q2 earnings before interest, tax, depreciation and amortization due to additional operating costs from new resorts, according to UBS analysts. 

The Q2 estimates compare to a fall in EBITDA of 18 percent QoQ and 42 percent YoY in 15Q1. Gross gaming revenue dropped 12 percent QoQ, and 37 percent YoY, analysts Anthony Wong and Angus Chan wrote in a note. 

The analysts say they expect additional operating costs from new openings to drive a sequential contraction in sector EBITDA margin, cushioned slightly by a beneficial business mix – mass contracting slower than VIP. 

By segment, UBS estimates VIP revenue dropped 16 percent QoQ and 46 percent YoY, while mass revenue dropped 8 percent QoQ and 25 percent YoY. 

“With weak revenue trends in Q2 well known in the market, we expect focus to be on operating costs during results- i.e. how much opex were added from new openings, and whether existing operations managed to show results from cost savings efforts.” 

For Galaxy Entertainment UBS estimates $20 million in incremental operating expenditure from its Galaxy Macau Phase 2 and Broadway resorts. These were onely open for 34 days during the period. “For other operators, we do not expect material savings from existing properties in Q2, given labour costs still faced upward pressure sequentially on unit wage increases.”

The analysts say they expect Sands to show the least decline in QoQ profits, and Galaxy Entertainment and Melco Crown Entertainment, the most.

“We expect Sands to report the smallest drop in QoQ profits due to share gain across segments, partly buoyed by a strong quarter in direct VIP, balanced by weaker room rates. We believe Galaxy (additional opex) and MPEL (from high to low VIP hold QoQ in Macau) will show the largest decline in profits.”