20140708-高盛-Macau_tour_takeaways__No_change_in_China_s_stance_toward_Macau_21页_1mb

Macau Tour Takeaways Summary

Core Content

The document provides an analysis of the Macau gaming sector, focusing on the impact of recent policy changes, the slowdown in VIP gaming revenue growth, and the outlook for the rest of 2014 and beyond. It also includes a review of 12-month target price changes and valuation comparisons for major Macau gaming operators.

Main Points

1. China's Policy Stance Toward Macau Remains Unchanged

• The Chinese government continues to support Macau's development as an entertainment hub.
• Recent policy changes, such as the smoking ban, transit visa restrictions, and Unionpay card regulations, are seen as part of broader anti-corruption and regulatory efforts, not targeted at the VIP segment.
• These policies are unlikely to have a significant impact on Gross Gaming Revenue (GGR), as they are not new restrictions but rather adjustments to existing practices.

2. VIP GGR Slowdown and Outlook

• The VIP GGR growth slowed significantly in the second quarter of 2014, attributed to the "runaway junket agent" incident in April, which caused liquidity issues and loss of investor confidence.
• Operators expect the VIP segment to stabilize and show improvement in the fourth quarter of 2014, with a forecast of 2% GGR growth for the full year.
• The slowdown is seen as cyclical, not structural, and is expected to be offset by improved liquidity and market conditions in the latter half of the year.

3. Mass-Market Segment Performance

• The mass-market segment is expected to drive growth, with a forecast of 29% GGR growth in 2014.
• Operators are shifting resources from VIP to mass-market to capitalize on stronger demand and better profitability in this segment.
• The growth in mass-market GGR is attributed to increased player engagement and the ability to generate higher returns with fewer tables.

4. Impact of Policy Changes

• Smoking Ban (October 6): Expected to have a modest impact on GGR, with an estimated 3–5% decline. Operators believe the effect will be minimal due to the stickiness of gaming demand and the ability to adapt through layout changes.
• Transit Visa Policy: Reduced stay duration for first and second visits, but this is not a new restriction. It is likely to have a limited impact on GGR since most visitors already stay less than two days.
• Unionpay Card Regulations: While some illegal portable devices were confiscated, the government is not aiming to ban Unionpay cards entirely. The focus is on controlling illegal cash withdrawals and monitoring transactions more closely.

5. Valuation and Target Price Adjustments

• Target prices for several Macau gaming stocks were adjusted downward for the 12-month period.
• The largest revisions were for MGM China and Melco Crown (HK), with a 24% decrease in target prices.
• Sands China, Galaxy, and MPEL also saw reductions, though smaller than MGM and Melco Crown.
• Despite the price adjustments, the report remains positive on Macau stocks, highlighting value and growth opportunities in the region.

6. Revenue and EBITDA Forecasts

• Revenue and EBITDA growth rates for 2014–2018 were revised downward due to reduced operating leverage and a shift in focus from VIP to mass-market.
• The revised EBITDA growth forecast for 2014–2018 is 15% (vs. 21%–30% previously), and revenue growth is forecasted at 19% (vs. 21%–30%).
• The decline in operating leverage is attributed to a decrease in bet sizes and a focus on player tiering and acquisitions.

7. Market Consolidation and Liquidity Concerns

• The junket market has undergone consolidation following the April incident, with smaller operators facing financial difficulties.
• Larger junkets have adjusted their credit policies to preserve capital and avoid further losses.
• Liquidity is expected to improve in the fourth quarter, supporting a recovery in VIP GGR.

Key Information

• GGR Forecast for 2014: 10% overall growth, with VIP at 2% and mass-market at 29%.
• VIP Recovery: Expected to pick up in 4Q14, with a forecast of 1% growth in the second half of the year.
• Mass-Market Growth: Expected to continue strong, with a forecast of 23% growth in 2H14.
• Target Price Adjustments: A range of 0–5% reductions across all stocks, with MGM China and Sands China remaining as top buys.
• Valuation Metrics: All companies show a discount to the market, with EBITDA estimates 1–6% below consensus.

Summary Table of Key Forecasts

Conclusion

The report outlines a cautiously optimistic outlook for the Macau gaming sector, with a focus on the recovery of the VIP segment and the continued strength of the mass-market segment. While recent policy changes and liquidity issues have impacted short-term performance, operators remain confident in the long-term prospects of the market. The document also highlights the value proposition of Macau stocks, despite the downward revision in target prices, and suggests that the sector is still attractive for investment.