20160202-高盛-Less_NT_earnings_risk__potential_price_upside_on_mean_reversion_11页_281kb

Macau Gaming Sector Summary

Core Content

The document outlines the current state and future outlook of the Macau gaming sector, focusing on gaming gross gaming revenue (GGR), hotel occupancy trends, and stock valuation analysis. It suggests that despite a weak Chinese macroeconomic environment, there are signs of a modest recovery in gaming demand, particularly in the mass-market segment. The sector is also expected to benefit from new projects and potential mean reversion in valuations.

Main Points

• GGR Recovery: Macau's GGR in January 2016 was MOP18.7bn or MOP602mn per day, consistent with the steady run rate of MOP550-600mn since 3Q15. There was a notable increase in overnight visitation (+14% yoy in Dec 2015) compared to the previous year's -3%.
• CNY Period Performance: Most casino hotels in Macau were fully booked during the CNY period (Feb 9-12, 2016), which is typically the busiest time of the year. This indicates strong demand, especially for mass-market gaming.
• Valuation Mean Reversion: The sector's current valuation is seen as undervalued compared to the 5-year average. Assuming a mean reversion to the 5-year average (12x EV/EBITDA and 7% FCF yield), there is potential for a +9% to +14% share price upside from the Feb 1 close.
• Stock Recommendations:
  • Galaxy (Buy) is expected to report strong 4Q results due to the ramp-up of GM Ph2.
  • Wynn (CL-Buy) is noted for having priced in little for new projects.
  • Sands and Wynn show sequential EBITDA recovery and better margins.
• Earnings Revisions: Earnings revisions for the sector are expected to stabilize, with reduced near-term earnings risk compared to other sectors with deteriorating fundamentals.
• Valuation Adjustments: The target prices for the stocks have been adjusted, with some showing positive revisions and others negative. For example, Wynn's target price increased by 81%, while Melco Intl's decreased by 9%.

Key Information

• GGR Trends:
  • January 2016 GGR was MOP602mn per day.
  • The forecast for FY16E is a 5% increase to MOP632mn per day.
• Hotel Occupancy:
  • During the CNY period, most hotels were fully booked.
  • Sands China's hotel room rates increased significantly during the CNY period, indicating strong demand.
• Visitation Trends:
  • Macau's visitation showed a +4% yoy increase in December 2015, while Hong Kong's decreased by -11%.
• Valuation Impact:
  • The sector's EV/EBITDA is at 11x for 2016E, below the 5-year average of 12x.
  • The FCF yield is at 8% (excluding uncompleted projects), below the 5-year average of 7%.
• Risk Factors:
  • Continued HKD strengthening may affect Macau's competitiveness as a regional travel destination.
  • Junket regulation risks, such as restrictions on deposits taking, could impact the sector.

Summary of Target Price Changes

Stock	Ticker	Price 1-Feb	Rating	12-mo TP (New)	12-mo TP (Old)	Potential +/- % Revisions	TP %
Wynn Macau	1128.HK	9.25	Buy*	14.90	-14.90	81%	0%
MGM China	2282.HK	9.33	Buy	12.70	-13.00	36%	-2%
Galaxy	0027.HK	24.20	Buy	30.90	-32.40	28%	-5%
S.J.M	0880.HK	5.01	Neutral	7.10	-7.20	42%	-1%
Melco Intl	0200.HK	9.25	Neutral	10.10	-11.10	9%	-9%
Sands China	1928.HK	26.90	Neutral	29.00	-29.00	8%	0%
MPEL	MPEL	15.24	Neutral	15.50	-16.90	2%	-8%

• On Conviction List

Research Highlights

• VIP Expectation Reset: There is a reset in VIP expectations, with signs of mass-market recovery.
• Buy Wynn: Wynn is recommended as a buy due to its strong performance and potential for growth.
• Conflict of Interest: Goldman Sachs has a conflict of interest due to its business relationship with companies covered in its reports.
• GGR Data: The GGR data shows a consistent trend from 2010 to 2016, with a slight decline in 2016.
• Visitation Comparison: Macau's visitation showed a positive trend in December 2015, while Hong Kong's visitation decreased, indicating a decoupling trend.

Conclusion

The Macau gaming sector is showing signs of recovery, particularly in the mass-market segment, with improved hotel occupancy and potential for mean reversion in valuations. The document highlights the importance of new projects and macroeconomic factors in driving GGR recovery and re-rating. While there are risks, such as HKD strengthening and junket regulations, the sector's fundamentals are improving, and certain stocks are recommended for investment.