20161110-招商证券_香港_-Looking_beyond_results__positive_FY17E_growth_26页_3mb_3mb

Industry Report Summary: Macau Gaming

Core Content

The Macau gaming industry showed strong performance in the third quarter of 2016 (3Q16), with EBITDA growth surpassing expectations. The overall sector reported a 17% YoY increase and 19% QoQ increase in EBITDA, driven by 7% QoQ growth in GGR (Gross Gaming Revenue). The report highlights that the sector is expected to maintain its growth trajectory into 2017, with a 7% YoY GGR growth forecast, which would translate to a 14% YoY EBITDA growth. However, potential risks such as stricter anti-money laundering (AML) regulations and a full smoking ban in casinos are noted.

Main Points

• 3Q16 EBITDA Growth:

  • +17% YoY and +19% QoQ to HK$12.8bn.
  • GGR increased +1% YoY and +7% QoQ to MOP55.0bn.
  • EBITDA margin improved by 2ppts YoY/QoQ due to:
    1. Increased foot traffic during the summer peak season.
    2. Rising contribution from high-margin mass gaming.
    3. Tight cost control.

• Operator Performance:

  • Galaxy and Sands China outperformed expectations.
  • MGM China benefited from the luck factor.
  • Wynn Macau underperformed due to VIP cannibalization from Cotai and increased operational costs from Wynn Palace's opening.
  • Melco Crown performed in line with expectations, with Studio City's ramp-up contributing positively.

• 2017E Outlook:

  • GGR growth is expected to be +7% YoY.
  • Key drivers include:
    1. Parisian's mass business.
    2. Wynn Palace's premium mass ramp-up from mid-2017.
    3. MGM Cotai's contribution starting from 2Q17.
  • EBITDA growth is projected at +14% YoY, with increased profitability from mass gaming and stable operating costs.

Key Information

• Sector Valuation:

  • Trading at 25x FY17E P/E and 13x EV/EBITDA, aligning with five-year historical averages.
  • The report suggests a NEUTRAL stance due to limited upside potential and macroeconomic uncertainties.

• Top Picks:

  • BUY for Sands China, Galaxy, and Wynn Macau.
    • Sands China: Strong mass gaming growth and potential for dividend hikes.
    • Galaxy: Stable EBITDA growth and attractive valuation.
    • Wynn Macau: Potential for growth in premium mass gaming.
  • NEUTRAL for MGM China and Melco Crown due to fair valuation.
  • SELL for SJM due to weak outlook and increasing competition from Cotai.

• Risks:

  • Stricter AML regulations may restrict VIP consumption and increase operational costs.
  • Full smoking ban could negatively impact gaming revenue.
  • Price wars in Cotai and margin pressures from increased competition.

Financial Highlights

Sector Performance

• 3Q16 Results:

  • Three operators beat expectations, while one missed.
  • Mass gaming was the main driver of EBITDA growth.
  • Wynn Macau underperformed due to the impact of VIP cannibalization and operational costs.

• GGR and Market Share:

  • Sands China gained market share at the expense of SJM.
  • Galaxy and Sands China had strong mass gaming performance.
  • Wynn Macau and MGM China showed growth in VIP gaming.

• Non-Gaming Revenue:

  • Non-gaming revenue is growing, although still a small portion of total revenue.
  • Sands China and Galaxy had the highest non-gaming revenue.

Operational Metrics

Industry Data

• IVS vs. Package Tourist Arrivals: IVS (Individual Visitor Scheme) and package tourist arrivals from mainland China are both growing.
• Length of Stay: Increased for overnight visitors, indicating stronger tourist engagement.
• Hotel Occupancy Rate: Improved with increased room supply, reflecting a positive trend in the hospitality sector.
• Visitor Arrivals: Strong during CNY and National Day Golden Week, contributing to seasonal growth.

Macau Casino Map

The report includes a visual representation of Macau's casinos, highlighting both the Peninsula and Taipa & Cotai areas. Key casinos include:

• Peninsula:
  1. SJM-Grand Lisboa (2007)
  2. SJM-Lisboa (1970)
  3. SJM-Oceanus (2009)
  4. Galaxy-StarWorld (2006)
  5. Wynn Macau-Wynn Macau (2006)
  6. MGM China-MGM Grand (2007)
  7. Sands China-Sands Macao (2004)
• Taipa & Cotai:
  • Melco Crown-Altira (2007)
  • Galaxy-Galaxy Macau 1 & 2 (2011)
  • Sands China-Parisian (2016)

Conclusion

The Macau gaming sector is showing resilience and growth, with strong performance in mass gaming and improving EBITDA margins. However, potential regulatory and operational challenges, such as stricter AML rules and a smoking ban, could affect future performance. The report recommends focusing on operators with strong fundamentals and growth potential in mass gaming, such as Sands China and Galaxy, while maintaining a NEUTRAL stance on others due to fair valuations or limited growth prospects.