Factoring in a slower recovery

We cut our gross gaming revenue (GGR) forecasts following a slower-than-expected recovery since resumption of the Individual Visit Scheme (IVS) process, due to logistical challenges for mainland visitors and regulatory pressures on the VIP segment. We now expect a GGR decline of 66% YoY (previously down 50% YoY) in Q420E, and GGR in 2021E to reach 76% of 2019 level (previously 95%), split 85%/60% for mass/VIP. We cut EBITDA by 20% for 2021E to US$7.3bn (76% of 2019 level). The sector trades at 16.6x 2021E and 10.2x 2022E EV/EBITDA, versus 12.5x a long-term mean. We believe this is fair, considering low visibility on further border relaxation and COVID-19 risks, balancing below-mean valuation on a normalised EBITDA basis (2022E). We upgrade Wynn Macau from Sell to Neutral, and Melco International Development (MID) from Neutral to Buy on valuation. We maintain our neutral sector view, with Sands, MID and Melco Resorts (MLCO) our sector top picks.

Further border policy relaxation key to recovery

The number of visitors arriving in Macau has been improving with policy relaxation since mid-July, reaching 22k/day in early November (108k/day in 2019). The recovery is led by premium mass players, with overall GGR down 73% YoY versus the number of visitors down 80% YoY in October. We expect a gradual recovery until next border policy easing. China has taken a stringent approach to manage COVID-19 risks, which could mean more gradual loosening before a vaccine is available.

Cut 2021E/22E EBITDA by 20%/10%

For 2021E, we now assume mass GGR to recover to 85% of 2019 level and VIP at 60% of 2019 level (previously 95% for both), to account for a slower-than-previouslyexpected recovery, a delay in new supply, and regulatory pressures on VIP. Partially offsetting this is lower opex. Consequently, we forecast wider EBITDA losses for 2020E and cut EBITDA by 20%/10% for 2021E/22E.