20171023-招商证券_香港_-Macau_Gaming__3Q17_preview__MLCO_to_be_the_major_positive_surprise_21页_917kb

Macau Gaming Industry Report Summary - 3Q17 Preview

Core Content

This report provides an analysis of the Macau gaming industry performance for the third quarter of 2017 (3Q17E), focusing on key operators and their financial performance, valuation, and future outlook.

Main Points

• 3Q17E GGR Growth:

  • Macau GGR grew 22% YoY and 7% QoQ to US$8,375 million.
  • VIP GGR increased 35% YoY and 8% QoQ to MOP38,687 million, marking the highest since 1Q15.
  • Mass GGR grew 7% YoY and 5% QoQ, showing a more moderate but solid growth.

• Property EBITDA Growth:

  • 3Q17E property EBITDA rose 18% YoY and 8% QoQ to US$2,042 million.
  • Wynn Macau led with an 84% YoY increase in EBITDA, while Melco Resorts showed 10% QoQ growth.

• Sector Outlook:

  • The sector is in a phase of profit-taking after a strong September rally.
  • Near-term attractiveness is low due to a passable but unexciting 3Q and a lifted 4Q base.
  • The report suggests that Melco names remain attractive due to strong 3Q results and undemanding valuation.

• 4Q17E Growth:

  • Growth is expected to slow, with GGR likely to grow 10% YoY.
  • Property EBITDA might grow 12% YoY.
  • The report notes that the slowing growth is unlikely to trigger panic but also difficult to drive re-rating.

Key Information

• Valuation:

  • The sector is trading at 24x FY17E P/E and 14x EV/EBITDA, in line with historical averages.
  • Melco Resorts is valued at 10x FY18E EV/EBITDA, which is undemanding.
  • The report suggests that Melco Group, as a proxy for Melco Resorts, is also undervalued.

• Operator Performance:

  • Melco Resorts (MLCO US):
    • Strong performance across all properties, with EBITDA growth of 26% YoY and 10% QoQ.
    • Expected to benefit from the opening of Morpheus in 1H18E.
    • New TP: US$29.20 (from US$29.00).
  • Wynn Macau (1128 HK):
    • EBITDA grew 84% YoY and 9% QoQ to US$325 million.
    • Strong performance in both VIP and mass segments.
    • New TP: HK$22.20 (same as previous).
  • Galaxy (27 HK):
    • EBITDA grew 30% YoY and 6% QoQ to HK$3,496 million.
    • Strong VIP and mass business, though affected by typhoon-related closures.
    • New TP: HK$56.10 (from HK$55.10).
  • Sands China (1928 HK):
    • EBITDA grew 2% YoY and 7% QoQ to US$643 million.
    • Performance impacted by typhoon, but still attractive for yield-focused investors.
    • New TP: HK$41.70 (same as previous).
  • MGM China (2282 HK):
    • EBITDA grew -16% YoY and +5% QoQ to HK$1,068 million.
    • Expected to have strong earnings growth in FY18E and FY19E, but with challenges from the ramp-up process.
    • TP remains HK$18.00 (same as previous).
  • SJM (880 HK):
    • EBITDA grew -10% YoY and +10% QoQ to HK$731 million.
    • Potential opening delay of Lisboa Palace and continued market share loss to Cotai properties are key concerns.
    • TP updated to HK$7.40 (from HK$8.30).

Investment Summary

Key Risks

• Galaxy: Potential cannibalization from Wynn Palace and Parisian, increased marketing expenses.
• SJM: Continued market share loss to Cotai properties, potential delay in Lisboa Palace's opening.
• Wynn Macau: Tightening policies on junket liquidity, slower-than-expected ramp-up of premium mass.
• Sands China: Weaker-than-expected performance of Parisian, greater-than-expected cannibalization.
• MGM China: Further delay in Cotai opening, higher operating expenses in Cotai.

Valuation and Market Trends

• The sector is undervalued, but lacks big catalysts to drive another rally in the near term.
• Melco Resorts and Melco Group are highlighted as top picks due to strong performance and undemanding valuation.
• Galaxy, Sands China, and Wynn Macau are also rated as BUY due to their strong fundamentals and growth potential.
• MGM China and SJM are rated NEUTRAL due to ongoing challenges and uncertain growth prospects.

Figures and Data

• 3Q17E GGR: US$8,375 million, up 22% YoY and 7% QoQ.
• Property EBITDA: US$2,042 million, up 18% YoY and 8% QoQ.
• Valuation Metrics:
  • 1-year forward P/E: 24x FY17E, 23x FY18E, 27x FY18E for Melco Resorts.
  • 1-year forward EV/EBITDA: 14x FY17E, 15x FY18E, 13x FY18E for Melco Resorts.
• Financial Highlights:
  • Galaxy has a large land-bank and Phase 3 and 4 expansion as potential catalysts.
  • Melco Group's SOTP-based target price implies a 33% holding discount.

Conclusion

The report suggests that the Macau gaming sector is in a consolidation phase with limited upside in the short term. Melco Resorts and Melco Group are highlighted as the top picks due to their strong 3Q17E results and undemanding valuations. Other operators such as Galaxy, Sands China, and Wynn Macau are also rated positively, while MGM China and SJM remain neutral due to ongoing challenges and uncertainties. The report emphasizes the importance of upcoming developments such as the opening of Morpheus for Melco and the continued ramp-up of new properties for other operators.