20160822-高盛-GGR_recovery_on_track__table_supply_controlled__sector_fairly_valued_16页_453kb

Macau Gaming Sector Summary

Core Content

The document provides an analysis of the Macau gaming sector, focusing on table supply, GGR (Gross Gaming Revenue) recovery, and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) implications for major operators. It outlines the government's strategy to control table supply and its impact on the industry's long-term growth and market share distribution.

Main Points

• Table Supply and Allocation:

  • The government has allocated 100 new tables to Wynn Palace (WP) at its opening in August 2016, with an additional 25/25 tables in 2017/18, totaling 150.
  • The government is aiming to control the annual table supply growth at 3-5% to avoid over-saturation.
  • Adjusted forecasts assume 150 tables for WP, 250 for MGM Cotai, and 250 for SJM Palace, resulting in a total of 7,048 tables by end-2018E.
  • The room-to-table ratio is expected to increase to 4.4x in 2018E, up from 3.5x in 2015.

• GGR Recovery:

  • Daily GGR increased from MOP529mn in June to MOP586mn in August 2016.
  • The forecasted daily GGR run rate for August-December 2016 is MOP658mn, up 12% from MOP589mn in July 2016.
  • The overall GGR is expected to grow at a CAGR of 6% from 5,957 tables in 2015 to 7,048 by end-2018E.

• EBITDA Impact:

  • The allocation of additional tables affects EBITDA. For example, every 50 additional tables for Wynn could increase its 2017E EBITDA by 7%.
  • The EBITDA of operators is sensitive to table allocation changes, with sensitivity analyses showing varying impacts based on the number of tables added.
  • The sector is fairly valued, with the EV/EBITDA multiple at 13x for 2017E, which is inline with long-term averages when excluding Sands China.

• Market Share Dynamics:

  • Wynn's market share is expected to increase significantly with the opening of Wynn Palace, from 8.4% in 2016E to 13.3% in 2017E.
  • MGM is also expected to gain market share, with potential increases from 7.3% to 9.8% in 2017E based on table allocation.
  • Sands China's market share may decline due to the new table allocations, with a potential reduction of 3% in 2017E.

• Operator-Specific Analysis:

  • Wynn Macau: Expected to gain 6% EBITDA share in 2017E.
  • MGM China: Expected to gain 3% EBITDA share in 2017E.
  • SJM: Expected to gain 17% EBITDA share in 2017E.
  • Galaxy: Expected to gain 16% EBITDA share in 2017E.
  • MPEL: Expected to gain 24% EBITDA share in 2017E.
  • Sands China: Expected to lose 11% EBITDA share in 2017E.

Key Information

• Table Allocation Strategy: The government is carefully managing table supply to ensure a controlled growth of 3-5% annually, aiming to prevent over-supply.
• GGR Recovery: The sector has shown signs of recovery, with GGR increasing from MOP529mn in June to MOP586mn in August 2016.
• EBITDA Sensitivity: Additional tables can significantly impact EBITDA, with a 50 table increase leading to a 3-12% change in EBITDA for Wynn, Sands, MGM, and SJM.
• Room-to-Table Ratio: Expected to rise to 4.4x in 2018E, indicating an improvement in the sector's overall efficiency.
• Investor Sentiment: Despite concerns over Wynn's execution at WP, the stock is trading at a discount, with a 10x EV/EBITDA multiple for FY17.

Summary of Target Price Changes

*On Conviction List

Exhibit 1: New Table and Room Supply Projections

• Total New Table Supply: 1,298 by end-2018E.
• Total Table Count: Expected to grow from 5,711 in 2014 to 7,048 by end-2018E.
• CAGR: 6% for tables, 8% for mass-market tables, and 5% for VIP tables.
• Location Breakdown:
  • Cotai/Taipa: Expected to increase from 40% to 57% of total tables by 2018E.
  • Peninsula: Expected to decrease from 60% to 43% of total tables by 2018E.

Exhibit 2: Wynn's EBITDA Sensitivity Analysis

• Table Allocation Impact: Each 50 additional tables to Wynn increases 2017E EBITDA by 7%.
• Market Share Gain: Wynn's share is expected to rise from 9.8% to 15.0% in 2017E.
• Implied EV/EBITDA: Drops from 10.8 to 7.1 as table count increases.
• FCF Yield: Rises from 10.2% to 18.1% as table count increases.

Exhibit 3: Sands' EBITDA Sensitivity Analysis

• Table Allocation Impact: Each 50 additional tables to Sands increases 2017E EBITDA by 3%.
• Market Share Gain: Sands' share is expected to rise from 23.7% to 28.1% in 2017E.
• Implied EV/EBITDA: Drops from 17.8 to 13.6 as table count increases.
• FCF Yield: Rises from 5.2% to 7.2% as table count increases.

Exhibit 4: MGM's EBITDA Sensitivity Analysis

• Table Allocation Impact: Each 50 additional tables to MGM increases 2017E EBITDA by 7%.
• Market Share Gain: MGM's share is expected to rise from 7.3% to 13.4% in 2017E.
• Implied EV/EBITDA: Drops from 17.5 to 9.4 as table count increases.
• FCF Yield: Rises from 6.1% to 13.6% as table count increases.

Conclusion

The Macau gaming sector is on a path of recovery, with controlled table supply and increasing GGR. The allocation of new tables to operators like Wynn, MGM, and Sands is expected to influence their EBITDA and market share in the long term. While the short-term earnings impact may be limited due to underutilization, the sector remains fairly valued, with potential for growth based on the allocation strategy and recovery trends.