20141114-高盛-PM_Summary__Long-term_analysis_beats_short-term_noise_17页_361kb

PM Summary: Long-term Analysis Beats Short-term Noise

Core Content

This report provides a long-term analysis of the global gaming industry, highlighting six structural themes that are expected to shape its evolution. It also introduces a Competitive Positioning (CP) framework to evaluate the long-term potential of 20 global gaming companies and identifies key investment ideas based on this framework.

Six Key Themes

1. Strong Gaming Demand in Asia:

   • Asia's GGR is projected to grow at a 9% CAGR from 2013 to 2018E, outpacing the saturated US market (2% CAGR).
   • The growth is driven by rising income levels, increasing middle-class populations, and more mainland Chinese travelers.

2. Construction of Larger Casinos:

   • Larger casinos with non-gaming amenities are being built to serve sophisticated customers and diversify revenue streams.
   • However, significant capital expenditures may dilute short-term cash returns.

3. Opening Up of New Gaming Jurisdictions:

   • New markets such as Japan and Taiwan are expected to liberalize gaming regulations, offering expansion opportunities.
   • Companies like LVS, MGM Resorts, Wynn, and Genting are actively expanding into these regions.

4. Evolving Regulation in Newer Markets:

   • Regulations in newer gaming markets are less stable, posing risks such as changes in gaming taxes, license renewals, and capacity limits.
   • Regulatory clarity is a key factor for long-term stability and profitability.

5. Technological Development:

   • Technology can improve efficiency and profitability, but also presents challenges such as the impact of online gaming on brick-and-mortar casinos.
   • Electronic table games and machines can reduce staffing costs and increase revenue, while online gaming may redistribute revenue.

6. Deployment of Excess Cash:

   • Companies in supply-restricted markets (e.g., Macau) benefit from higher returns and accumulate more cash.
   • This cash can be used for overseas expansion or returned to shareholders through dividends or buybacks.

Competitive Positioning (CP) Framework

The CP framework evaluates companies based on five key drivers:

• Access to Growth:

  • Companies with exposure to underpenetrated and faster-growing markets score higher.
  • Asian operators generally score higher due to favorable demographics and growth potential.

• Ability to Capture Market Growth Potential:

  • Companies with more capacity growth and a greater share of incremental market supply gain market share.
  • Transportation infrastructure and direct flight availability are used as objective measures.

• Operating Efficiency and Profitability:

  • Preference is given to operators with higher revenue from mass-market and non-gaming segments.
  • EBITDA per gaming position and operating efficiency are important metrics.

• Regulatory Stability:

  • Companies in mature, stable regulatory environments are favored.
  • Factors include straightforward license renewal processes, fixed tax rates, and limited new entrants.

• Financial Strength:

  • Financial capability to expand and return cash to shareholders is crucial.
  • Measured by net debt to EBITDA ratios.

Top Stock Ideas

• Buy-rated "Well-Positioned Leaders": Galaxy, MGM China (CL), LVS, Naga Corp.
• Buy-rated "Competitive Challengers": MPEL, Crown.
• Sell-rated "Structurally Challenged": Boyd Gaming, Pinnacle Entertainment.

Key Takeaways

• Asia offers superior growth and return:

  • Expected to reach nearly 50% of the global casino market by 2018E.
  • GGR per capita is closely linked to disposable income, indicating strong upside in emerging Asian countries.

• Expansion into Asia is a key strategy:

  • Companies in mature markets (e.g., US) are expanding into Asia due to local demand and undersupply.
  • Operators with successful overseas expansion (e.g., LVS, Wynn, MGM, Crown) have higher CP scores.

• Regulatory risks are higher in Asia:

  • Frontier markets like Cambodia and Russia face uncertain regulatory environments.
  • Stability in regulation is a critical factor for long-term success.

• Higher CROCI correlates with better CP scores:

  • Companies with strong CP scores tend to have higher CROCI (Cash Return on Capital Invested).
  • This suggests that the CP framework effectively identifies companies with strong growth and profitability potential.

• Excess cash deployment is a key advantage:

  • Supply-restricted markets allow for better cash returns and more financial flexibility.
  • This enables expansion and shareholder returns, which are key for long-term value creation.

Conclusion

The report emphasizes that long-term growth in the gaming industry is driven by structural trends in Asia, including strong demand, regulatory changes, and technological advancements. Companies with strong exposure to these trends and better financial and operational positioning are expected to outperform. The CP framework is a useful tool for identifying such companies, and the top-rated ones are those with a clear strategy for capturing growth in emerging markets and maintaining profitability through efficient operations and regulatory stability.