BofA Securities: Macau's gaming revenue expected to be flat year-on-year next year; cash buffers and credit ratings of Macau gaming stocks in focus

BofA Securities: Macau's gaming revenue expected to be flat year-on-year next year; cash buffers and credit ratings of Macau gaming stocks in focus BofA Securities has published a research report discussing the key credit themes for Macau's gaming industry in 2027. It expects gaming revenue to be roughly flat year-on-year, at about 85% of 2019 levels, with trend visibility still low; EBITDA is expected to lag slightly behind gaming revenue due to intense competition in the premium mass segment, though planned operating expense cuts may offer upside. The bank noted that with limited earnings growth, maintaining capital expenditure and shareholder returns may cause some operators to generate negative free cash flow. To preserve liquidity, operators are expected to first refinance maturing US dollar bonds in the bond market, with lower-cost syndicated loans as a backup. Ratings warrant close attention, particularly for SJM Holdings (00880), where flat gaming revenue may slow deleveraging progress relative to rating agencies' expectations, and where a relatively high proportion of floating-rate loans makes it most sensitive to rising interest rates. On policy, Macau may tighten enforcement against illegal currency exchange, and new mainland policies targeting high-net-worth individuals or stricter enforcement could affect premium demandboth key points to watch. Looking ahead to next year, the bank expects industry property EBITDA to be at about 80% to 85% of 2019 levels, slightly lagging revenue (expected at 85% of 2019 levels). Gaming revenue is expected to be roughly flat year-on-year, with intense competition for premium mass customers likely keeping reinvestment elevated and limiting the conversion of revenue into EBITDA. On bond recommendations, the bank rates SJMHOL 2028 and 2031 bonds "Overweight," believing that despite the concentrated 2028 maturity, liquidity risk remains manageable and valuations already reflect weak fundamentals and downgrade pressure. Cash flow analysis shows that Sands China (01928), WYNN MACAU (01128), and SJM Holdings may face free cash flow gaps in 2027-2028 while maintaining capital expenditure and dividends; MGM CHINA (02282) and MELCO INT'L DEV (00200) related entities are relatively better positioned (expected to record positive figures). The six operators have agreed to contribute a total of MOP9 billion to the government's new guiding fund, payable in three equal annual installments, which will be counted toward existing non-gaming concession commitments; the bank views the cash flow impact as manageable.