Analysts Back Down on Macau Recovery as Hong Kong Restrictions Continue

Macau was converted into a virtual ghost town for much of 2020 because of the COVID-19 pandemic. It seemed like 2021 was going to bring a lot of positive activity as restrictions started to be lifted and gross gaming revenue (GGR) began to recover. However, even as industry analysts were starting to become more optimistic about the city’s odds for much better performance with its casinos this year, new problems surfacing in the area have led them to take a different approach. A new announcement that Macau won’t lift a mandatory quarantine for arrivals from Hong Kong hasn’t helped, with analysts from JP Morgan Securities forced to reduce their estimates for the city’s full-year GGR possibilities.

Macau Continues to Struggle with COVID-19

Macau began to see a considerable rise in its casino GGR as 2021 pushed forward. Then, at the end of last month, new COVID-19 cases that began popping up in mainland China forced the city to bring back certain travel restrictions and extend others. Yesterday, Macau announced that it would keep in place a restriction for arrivals from Hong Kong that require a 14-quarantine period and this isn’t helping the city regain ground. The restriction comes as isolated coronavirus cases continue to surface and Macau indicates that it won’t lift the requirement until Hong Kong goes 28 days without a new case.

The announcement was met with a grim view from JP Morgan analysts DS Kim, Derek Choi, and Livy Lyu. They said that they are “somewhat disappointed by the seemingly limited scale – at least initially – of the travel bubble plan, as well as the slower-than-expected timing of the launch.” As a result, the analysts lowered their full-year projection for Macau’s GGR by 5%, expecting it now only to reach 42% of the level seen in 2019. The analysts believe that the mass gaming market GGR will be 51% of what was seen in 2019 and that the VIP market will be just 26%.

Hong Kong Important to Macau

Mainland China and Hong Kong are important sources of revenue for Macau’s casinos, as they both produce much of the traffic that comes to the city. Mainland China ranks first and Hong Kong second, and ongoing COVID-19 issues in both are making it difficult for Macau to return to normal. The analysts point out that Hong Kong is responsible for 15-20% of the traffic to Macau and around 10% of its GGR, adding, “Hong Kong’s importance lies in its position as a key channel for traveller and capital flows from the mainland, in our view.”

Because of the ongoing restrictions, the summer months won’t bring the same level of relief that had once been anticipated. That will ultimately lead to further problems for Macau for the rest of the year, leading the analysts to indicate that they are less enthusiastic about the summer GGR. They now predict GGR in the third quarter will reach just 43% of what it was prior to COVID-19 and 58% in the fourth quarter. Previously, the analysts had forecast 50% and 66% recoveries for each of the quarters.