Lowering Uncertainty Rating to High for Macao Gaming Companies on Improved Demand Visibility

We have lowered our Morningstar Uncertainty Rating to High from Very High for the Macao gaming companies under coverage, as the removal of China’s COVID-19 restrictions from Jan. 8 should have removed the major hurdle that has been hindering Macao’s recovery over the past three years. Although it is likely that Macao and China will experience additional COVID-19 waves, which may cause demand to fluctuate, the evidence from other countries shows that the impact on the recovery trend was shorter and less impactful with each wave. We expect the same in Macao, and we have improved visibility around our existing base-case assumption that industry gross gaming revenue, or GGR, will return to 50% of 2019’s level, or MOP 145 million, in 2023, up from 14.4% in 2022. This is slightly higher than the Macao government’s estimate of MOP 130 million, reflecting a more upbeat outlook on the pent-up demand from both mainland China and Hong Kong.