Zhongtong Finance APP learned that Soochow Securities (Hong Kong) released a research report stating that the number of inbound tourists to Macau in June 2024 will recover to 82.4% of the same period in 2019. The bank expects the total industry gambling income in 2024 to recover to 81.2% of that in 2019 for the full year, and EBITDA to recover to 89.3% of that in 2019. The Macau gambling sector is undervalued, with a current industry valuation of 6.9 times EV/EBITDA, lower than the average for the period from 2013 to 2024 by 1.7 standard deviations. It is bullish on Galaxy Entertainment (00027), Melco Int'l Dev (00200), SJM Holdings (00880) which are expected to expand their market share in the second quarter, and MGM China (02282) which has strong operating capabilities. Sands China (01928) is expected to see a turnaround in the third quarter.

Soochow Securities (Hong Kong) main points are as follows:

The number of inbound tourists to Macau in June 2024 is expected to recover to 82.4% of the same period in 2019.

In June 2024, the number of inbound tourists to Macau was 2.551 million, with a daily average of about 0.085 million, which recovered to 82.4% of the same period in 2019, an increase of 3.1% compared to May. However, it was down 10.5% from the high point of 92.9% in February. In June 2024, the number of inbound tourists to Macau from mainland China/Hong Kong, China/Taiwan, China were 1.652/0.627/0.081 million, recovering to 78.7%/100.6%/85.6% of the same period in 2019, respectively, with a MoM increase of 2.2%, 0.5%, and 1.1%.

The bank expects the total industry gambling income for the full year of 2024 to recover to 81.2% of that in 2019, and EBITDA to recover to 89.3% of that in 2019:

Looking ahead, the bank expects the total industry gambling income to reach HKD 56.39 billion in 2Q24 (recovering to 79.8% of 4Q19, a MoM decrease of -1.6%), and industry EBITDA to reach HKD 16.131 billion (recovering to 88.4% of 2019) . The bank expects the total industry gambling income for the full year of 2024 to reach HKD 229.28 billion (recovering to 81.2% of 2019). Broken down by business, the total VIP/mass (including slot machines) gambling income for the full year is expected to reach HKD 30.12/199.16 billion, recovering to 27.5%/115.2% of 2019, respectively.

The leading role of high-end mass in the industry recovery continues:

In 1Q23/2Q23/3Q23/4Q23/1Q24, the average betting amount per person in mass market (mass gambling income/total number of inbound tourists) was 5270/4978/4473/4999/4839 Macau dollars. With the gradual return of regular customers in the mass market, the average betting amount per person has decreased somewhat compared to the early opening period, but it is still significantly higher than the level of 3800-4300 Macau dollars in 2019.

Recently, the Ministry of Public Security has increased its crackdown on illegal foreign exchange activities, which has caused some concern in the market.

However, the bank believes that such concerns may be excessive, for the following reasons: 1) Most existing players already have funds and do not need to obtain them through illegal means; 2) Crackdowns on illegal foreign exchanges have been going on for decades.

Galaxy Entertainment and Melco International Development are expected to perform well in 2Q24:

1) In terms of market share, the bank expects Galaxy Entertainment and Melco International Development to increase their market share by 0.6%/0.2% to 18.1%/14.6%, respectively. 2) In terms of win rate, it is expected that most VIPs of major gambling companies in 2Q24 will have a lower win rate than before the outbreak, and the win rate of most mass market gambling companies except SJM Holdings has caught up with the pre-epidemic level. 3) In terms of EBITDA profit margin, it is expected that in 2Q24, Melco International Development and Sands China's profit margins will increase by 0.7%/0.6%, respectively.

Risk warning: Chinese macroeconomic growth is lower than expected, Macau's tourism industry recovery is lower than expected, overseas gambling markets divert, and Macau's gambling regulatory policies are becoming more stringent.