德银-澳门-酒店、休闲与博彩业-新银联规则限制海外现金提款；影响力有限-20180102-14页_1mb

Macau Hotels / Leisure / Gaming Industry Update - 2 January 2018

Core Content Summary

This document provides an analysis of the Macau Hotels / Leisure / Gaming industry as of 2 January 2018, focusing on the impact of new regulatory measures and the outlook for 2018. The report highlights that while the December 2017 Gross Gaming Revenue (GGR) growth was weaker than expected, the overall sector is expected to perform well in 2018.

Key Points

• December 2017 GGR Performance:

  • Macau's December GGR growth was +14.6% yoy, below market expectations of 20%.
  • The weaker growth is attributed to smaller junkets being more impacted by tightened liquidity towards the year-end, while the top 2 junkets remained strong.

• UnionPay Regulation Impact:

  • On 30 December 2017, China's Foreign Exchange Administration (SAFE) introduced new rules limiting UnionPay cardholders to a Rmb100k annual withdrawal limit per person, regardless of the number of cards.
  • This rule is expected to have limited impact on the sector, as the most important cash access channel for mass players is through UnionPay fake purchases in local pawnshops, which are not affected by the new rule.
  • UnionPay overseas purchase limits are significantly higher (Rmb1m per card per day), making them more widely used for cash access in Macau.

• Regulatory Risks and Liquidity Tightening:

  • The Central Bank of China (CBRC) introduced new measures on 6 December 2017 aimed at containing shadow banking and speculative interbank activities.
  • These measures may have affected smaller junkets, particularly in their ability to provide liquidity to VIP players during the year-end period.

• 2018 Growth Outlook:

  • The report forecasts 17% yoy GGR growth for 2018, which is higher than the market consensus of 12%.
  • VIP GGR is expected to grow +21% yoy, while mass GGR is projected to grow +13% yoy.
  • The report argues that mass will not take over VIP as the key growth driver in 2018.

• Sector Valuation and Investment Strategy:

  • Macau stocks are currently trading at 13.7x DB 12m forward EV/EBITDA, slightly above the historical average of 12.4x.
  • The report recommends buying into weakness due to the potential for strong 2018 performance, with a target valuation of up to 16x EV/EBITDA in an upcycle.

• Top Picks:

  • Wynn Macau (1128.HK) and Galaxy (0027.HK) are recommended as Buy due to their strong market share and margin expansion potential.
  • Sands China (1928.HK) and SJM (0880.HK) are rated Hold, while MGM China (2282.HK) is also recommended as Buy.

Main Viewpoints

• The December GGR miss is considered a short-term blip due to liquidity constraints, not a long-term trend.
• The UnionPay cash withdrawal limit has limited impact on the sector due to the use of fake purchases for cash access.
• Junket regulations may become tighter in late January, but the top 5 junket operators are expected to handle the changes with ease.
• The sector valuation is seen as undervalued, and the report recommends buying into weakness for potential upside in 2018.
• VIP growth is expected to remain the main driver of GGR in 2018, with premium mass outperforming grind mass.

Key Information

• UnionPay cash withdrawal limit: Rmb100k per person per year.
• UnionPay fake purchase limit: Rmb1m per card per day, with no annual cap.
• December 2017 GGR: +14.6% yoy (MOP732m/day).
• 2018 GGR forecast: 17% yoy, with VIP at +21% and mass at +13%.
• Top Picks:
  • Wynn Macau: Buy, with a target price of HKD24.75.
  • Galaxy: Buy, with a target price of HKD62.70.
• Hold recommendations:
  • SJM and Sands China.
• Valuation metrics:
  • Macau sector: 13.7x DB 12m forward EV/EBITDA.
  • Expected maximum valuation: 16x EV/EBITDA.
• Regulatory focus:
  • CBRC and SAFE have introduced tighter controls to reduce shadow banking and speculative interbank activities.
  • Junket operators are under increased scrutiny, but the top operators are expected to adapt easily.

Conclusion

Despite the short-term challenges posed by the new UnionPay regulations and liquidity constraints, the Macau gaming sector is expected to recover and grow strongly in 2018. The report emphasizes that the key growth driver will remain the VIP segment, with premium mass outperforming. The sector valuation is seen as undervalued, and the report recommends buying into weakness for long-term gains.