20141006-高盛-Potential_GGR_growth_bottom_in_4Q_could_signal_inflection_point_14页_443kb

Macau Gaming Industry Summary

Core Content

The document provides an analysis of the Macau gaming industry's performance and outlook, highlighting a potential inflection point in the fourth quarter (4Q) of 2014, which may signal the bottoming of GGR growth. It discusses the impact of macroeconomic factors, the anti-corruption campaign in China, and the smoking ban on the industry. Additionally, it outlines the financial forecasts for 2014 and 2015, as well as the current stock performance and valuation metrics.

Main Points

• GGR Performance in 2014:

  • Macau GGR fell 12% year-over-year (yoy) in September 2014, slightly better than the -6% in August.
  • The 4Q 2014 GGR growth is forecasted to be flat (0% yoy), with VIP segment down 11% and mass segment up 21%.
  • The document notes that the GGR growth rate may bottom in 4Q 2014, suggesting a potential recovery in the following year.

• VIP Segment:

  • Demand from VIP and premium-mass players remained weak due to a sluggish property market and reduced travel to Macau linked to the anti-corruption campaign.
  • VIP GGR has fallen to levels similar to 2011, indicating a significant slowdown.

• Mass Market:

  • Mass market visitation grew 14% yoy year-to-date (ytd), supporting non-gaming segments.
  • The mass market is expected to grow by 20% in 2015, as operators report no difficulty in recruiting new players.

• Stocks and Valuation:

  • Macau gaming stocks may undershoot on sentiment, but a sustained de-rating is unlikely due to the slowdown being cyclical rather than structural.
  • The sector's forward P/E has fallen to 14.9x, below the mid-cycle level.
  • The sector's EV/EBITDA has contracted to 12.5x, returning to mid-cycle levels.
  • The average dividend yield has increased to 5.0%, and the free cash flow (FCF) yield has reached 7.5%.

• Earnings and Risk:

  • The key risk is earnings revisions, with adjusted EBITDA and TPs expected to be cut by 0–16% and 0–9% respectively for 2014–2016.
  • If GGR growth in 2015 falls by 5%, the bear case implies a 16% average cut to FY15E property EBITDA.

Key Financial Forecasts

Year	GGR Growth	VIP Growth	Mass Growth
2014E	0% yoy	-11%	+21%
2015E	+9%	+2%	+20%

Stock Ratings and Target Prices

Stock	Price (6-Oct)	Rating	12M TP (LCY)	Potential Upside
MGM China	23.45	Buy*	HKD 33.60	43%
Melco Crown - HK	67.00	Buy	HKD 96.20	44%
MPEL	24.80	Buy	HKD 36.90	49%
Sands China	42.95	Buy	HKD 58.80	37%
Galaxy	48.35	Buy	USD 68.30	41%
SJM	15.66	Neutral	HKD 21.30	36%
Wynn Macau	25.95	Neutral	HKD 32.70	26%

Market Trends and Visitations

• Visitation Growth:

  • Macau's visitation increased 14% yoy in October 2014, despite the "Occupy Central" protests in Hong Kong.
  • Mainland visitors accounted for 78% of total visitors, showing strong support for the mass market.

• GGR and Visitations:

  • The average daily GGR in Macau has declined over the years, with a notable drop in September 2014.
  • The document includes historical data showing the correlation between GGR growth and share price movements, indicating that share prices bottom when GGR growth bottoms.

Key Exhibits

• Exhibit 1: Share prices bottom when GGR growth hits its lowest point in past cycles.
• Exhibit 2: GGR growth rate bottomed in 2009 before share prices hit a low.
• Exhibit 3: Sector EV/EBITDA has contracted to 12.5x, back to mid-cycle.
• Exhibit 4: Sector P/E has fallen to 14.9x, below mid-cycle.
• Exhibit 5: Sector FCF yield increased to 7.5%.
• Exhibit 6: Average dividend yield increased to 5.0%.
• Exhibit 7: Historical GGR data from 2008 to 2014.
• Exhibit 8: Macau monthly GGR data and visitation trends.
• Exhibit 9: Visitations during the October Golden Week 2014.
• Exhibit 10: Forecasted GGR growth for 2014 and 2015, along with the number of gaming tables and net win per table.

Conclusion

The report suggests that while the current slowdown in the Macau gaming industry is cyclical, it may be the turning point for recovery, especially with new casinos opening in the second half of 2015. The document advises investors to consider adding to positions in the coming months following the release of key data and results.