20161208-招商证券_香港_-Macau_Gaming__2017_outlook_–_the_year_of_harvest_41页_3mb_3mb

Macau Gaming: 2017 Outlook – The Year of Harvest

Core Content and Key Information

Market Overview

• Macau's gross gaming revenue (GGR) is expected to grow by 11% YoY in FY17E, following a 3% YoY decline in FY16E.
• The gaming sector has bottomed out and is expected to continue its uptrend in FY17E.
• Mass-market gaming is the main driver of growth, contributing 57% of total GGR and 85% of total EBITDA.
• EBITDA is projected to grow by 18% YoY in FY17E, with EBITDA margins expected to increase by 2ppts YoY to 25% due to stable operating expenses and the growth of mass-market business.

Key Drivers of Growth

1. Ramp-up of new properties: Studio City, Parisian, and Wynn Palace are expected to significantly boost revenue.
2. MGM Cotai's contribution: Expected to contribute to the sector's performance from 2Q17E.
3. Increased mainland hotel guests: Average length of stay increased to 2.3 days, up from 2.1–2.2 days.
4. High occupancy rates: Despite a sharp increase in hotel room supply, the overall occupancy rate remains above 80%.
5. Tourist spending per head: On an upward trend, indicating stronger consumer spending.

Investment Thesis

• Melco Crown is highlighted as a top pick due to the accelerated ramp-up of Studio City and the potential for surprising the market in early 2017E.
• Sands China is another top pick, with a solid mass-market story and the addition of Parisian as a new tourist attraction.
• Wynn Macau is seen as a bottom fish opportunity with the premium mass business of Wynn Palace set to deliver results from mid-FY17E.
• Galaxy is also a top pick, with Galaxy Macau 2's ramp-up continuing, although it lacks specific catalysts.
• MGM China and SJM are rated NEUTRAL due to weaker outlooks and increased competition from Cotai properties.

Risk Factors

• China macroeconomic factors: Potential impact on the sector due to economic shifts.
• Stricter anti-money laundering (AML) rules: Could affect the flow of money in the gaming sector.
• Full smoking ban: Scheduled for decision in August 2017, which could affect consumer behavior and VIP gambling frequency.
• RMB depreciation: May have minimal impact on casual players but could negatively affect VIP gamblers in HKD terms.

Valuation and Performance

• The 1-year forward P/E is 16% higher than the 5-year average.
• The 1-year forward EV/EBITDA is 5% lower than the 5-year average.
• Melco Crown has a P/E 68% higher than peers and EV/EBITDA 20% lower.
• Sands China has a P/E 12% lower than peers and EV/EBITDA 15% higher.
• Wynn Macau has a P/E 10% higher than peers and EV/EBITDA 3% lower.

Main Points

2017E Fundamentals

• GGR Growth: Expected to grow by 11% YoY in FY17E.
• EBITDA Growth: Expected to grow by 18% YoY, with a margin increase of 2ppts YoY.
• Mass Market Dominance: Expected to continue being the major revenue driver, with a 30% share of total GGR for Sands China and 20% for Melco Crown.
• VIP Market Recovery: Expected to be unexpectedly strong, though uncertainties remain.

Company-Specific Highlights

• Melco Crown: Accelerated ramp-up of Studio City, potential for surprise results in 4Q16E, and dividend growth.
• Sands China: Strong mass-market performance with Parisian contributing to growth and potential dividend hikes.
• Wynn Macau: Premium mass business from Wynn Palace expected to start delivering in mid-FY17E, with dividend yield increasing.
• Galaxy: Continued growth from Galaxy Macau 2, with a stable P/E.
• MGM China: Expected to focus on premium mass after MGM Cotai opens in 2Q17E, but its performance is conservative.

Market Trends

• Cotai is surpassing Peninsula in GGR contribution.
• Mass-market seasonality is expected to extend into 2017E, with margin improvements.
• Hotel occupancy rates remain high despite increased room supply.
• Tourist spending per head is increasing, indicating stronger consumer spending.

Risks and Uncertainties

• Full smoking ban could impact consumer behavior and VIP gambling.
• RMB depreciation may affect VIP gamblers in HKD terms, though casual players remain unaffected.
• Uncertainty around new policies from the 19th National Congress in autumn 2017.
• Competition from new Cotai properties could impact existing operators.

Valuation and Performance Metrics

• Melco Crown has a P/E of 43.5x and EV/EBITDA of 11.5x.
• Sands China has a P/E of 22.6x and EV/EBITDA of 16.4x.
• Wynn Macau has a P/E of 28.1x and EV/EBITDA of 13.9x.

Summary of Investment Ratings

Conclusion

The Macau gaming sector is expected to experience a strong recovery in 2017E, driven by the ramp-up of new properties and the recovery of VIP business. While mass-market gaming continues to be the main driver, VIP performance is also expected to improve. However, risks such as the full smoking ban and RMB depreciation could impact the sector. The report highlights Melco Crown and Sands China as top picks for their potential for growth and strong mass-market performance.