20160912-高盛-Sensitivity_analysis__Sustainability_and_upside_potential_in_div._yields_11页_531kb

Summary of Sensitivity Analysis: Sustainability and Upside Potential in Dividend Yields

Core Content

This document presents a sensitivity analysis of dividend payout and net debt to EBITDA for several casino operators in the Macau market. The focus is on the potential for dividend sustainability and re-rating based on yield and growth prospects. It highlights the importance of dividend yield as a catalyst for re-rating and evaluates the financial profiles of operators to determine their ability to maintain or increase dividend payouts.

Main Points

• Dividend Commitment: Sands China is the only operator to date that has committed to maintaining or raising its dividend per share (DPS), currently at HK$1.99 or a 5.7% yield. Other operators have lower or no commitment to recurring payouts.
• Yield and Re-rating Potential: Sands China's share price has re-rated to a 30% premium to the sector EV/EBITDA, which is higher than the historical 13% premium. This is attributed to its commitment to maintain a higher DPS.
• Wynn Macau's Potential: If Wynn maintains its HK$0.6 DPS, it would represent 78% / 48% of its FCF in FY16E / FY17E, allowing it to reduce leverage to 1.8x by end-2018E. If it distributes all FCF (HK$1.25/share in FY17), it could re-rate to a 5.6% dividend yield, implying a share price of HK$22.
• Capital Expenditure (Capex) and FCF: Wynn Macau and MPEL could turn FCF positive earlier due to completed Cotai projects, while MGM and SJM are expected to follow in 2H17 and 2018, respectively. Galaxy still has outstanding capex for GM Ph3-4 and Hengqin.
• Leverage Ratios: The leverage ratios of the operators are expected to improve over time, especially for Wynn and MGM, as EBITDA rises. SJM may need to leverage up to 1.2x by end-2018E to fund the Lisboa Palace.
• Payout Ratios: Most operators can sustain payouts above 100% of earnings, except for Wynn, which has limited equity reserves. The base case for Wynn is a 119% / 74% payout in FY16E / FY17E.
• Net Debt to EBITDA: The net debt to EBITDA ratio is expected to decrease for most operators as EBITDA increases. However, Wynn's ratio is projected to rise from 4.0x to 1.8x by end-2018E, depending on FCF distribution.
• Sensitivity Analysis: The analysis shows that increasing payout percentages lead to higher dividend yields and lower net debt to EBITDA ratios. Wynn is more likely to maintain a higher payout compared to peers due to its financial profile and commitment.

Key Information

• Sands China:
  • DPS: HK$1.99
  • Dividend yield: 5.7%
  • Net debt to EBITDA: 1.4x to 1.9x
  • FCF yield: 6.2% to 6.5%
• Wynn Macau:
  • DPS: HK$0.60
  • Dividend yield: 4.6%
  • Net debt to EBITDA: 3.1x to 1.8x
  • FCF yield: 5.3% to 8.3%
• MGM China:
  • DPS: HK$0.25 to HK$0.33
  • Dividend yield: 1.6% to 2.5%
  • Net debt to EBITDA: 1.5x to 2.4x
  • FCF yield: 6.6% to 8.5%
• SJM Holdings:
  • DPS: HK$0.25 to HK$0.19
  • Dividend yield: 3.4% to 3.4%
  • Net debt to EBITDA: -4.2x to 1.2x
  • FCF yield: 8.5% to 10.0%
• Galaxy:
  • DPS: HK$0.29 to HK$0.27
  • Dividend yield: 1.3% to 0.9%
  • Net debt to EBITDA: -0.8x to -1.7x
  • FCF yield: 6.7% to 6.3%
• MPEL:
  • DPS: USD$0.71 to USD$0.12
  • Dividend yield: 0.8% to 0.8%
  • Net debt to EBITDA: 1.6x to 1.6x
  • FCF yield: 6.8% to 7.2%

Summary Table

Conclusion

The analysis underscores the importance of dividend yield and payout sustainability in the Macau casino sector. Sands China is positioned as the only operator with a clear commitment to maintaining DPS, leading to a re-rating and higher yield. Wynn Macau, despite having a lower yield, is more likely to maintain a higher payout ratio due to its financial position and ability to reduce leverage over time. Other operators, such as MGM and SJM, are expected to improve their financial metrics as EBITDA grows. Galaxy, while having substantial net cash, prefers to preserve cash for future development. The sensitivity analysis shows that higher payout percentages lead to higher dividend yields and lower net debt to EBITDA ratios, indicating a positive outlook for operators that can sustain higher payouts.