德银-港股-酒店、休闲与博彩业-澳门：黄金周后VIP玩家强势回升-20171031-Deutsche_Bank-Macau_VIP_picked_up_strongly_after_Golden_Week_25页_4mb

Macau Industry Update - 31 October 2017

Core Content Summary

• VIP Growth Post-Golden Week: Despite a weak Golden Week performance (GGR growth of ~9% yoy), VIP volume significantly increased after the Party Congress, leading to an expected GGR growth higher than the Bloomberg consensus of 14.5% yoy.
• Sector Performance: Macau stocks fell 7% in October, while the MSCI HK index remained flat. The report suggests that this is a good time to buy top picks as the market has pulled back.
• Junket Expansion: There has been a notable expansion in VIP rooms by both new and mid-sized junkets. David Group and MegStar are among the most active in opening new VIP rooms.
• 3Q Earnings Performance: Three Macau companies reported results. Wynn Macau and Sands China exceeded expectations, while SJM underperformed. All three companies saw an improvement in EBITDA margins, contrary to market fears of margin pressure.
• Investment Recommendation: Wynn Macau and MGM China are recommended as "Buy" due to the potential benefits from junket expansion and the expected turnaround for MGM China.

Main Points

VIP Growth

• VIP volume picked up significantly after the Party Congress, leading to improved GGR expectations.
• The report suggests that the Street underestimates VIP growth, with Deutsche Bank forecasting 2018 VIP GGR to grow by 15% vs. the consensus of 8%.

Junket Expansion

• Over 20 junket rooms were opened in Macau in the past three months, with 6-7 by new operators.
• Wynn Macau and MGM China are expected to benefit from this expansion.
• The Big 4 junkets are anticipated to increase their VIP room openings in the coming months.

3Q Earnings

• Wynn Macau and Sands China beat expectations, while SJM missed.
• EBITDA margins expanded qoq for all three companies, driven by operating leverage and cost control.
• Wynn Macau's EBITDA margin improved from 23.2% to 23.8% in 3Q17, and Sands China's Parisian property EBITDA margin increased from 29% to 32%.

Promotional Spend

• Sands China increased promotional spend, while Wynn Macau kept it in check.
• The report indicates that promotional spend as a percentage of mass table GGR declined for Wynn Palace.

Company Valuation

• Macau stocks trade at 13.2x 12m forward EV/EBITDA, considered reasonable.
• Wynn Macau and MGM China are recommended with a target EV/EBITDA multiple of 16x, 1 standard deviation above historical averages.
• Downside risks include a sharp slowdown in GGR momentum and regulatory changes.

Key Information

Top Picks

• Wynn Macau (1128.HK): Buy, with a target price of HKD19.36.
• MGM China (2282.HK): Buy, with a target price of HKD17.00.

Key Risks

• Sharp slowdown in GGR growth.
• Regulatory changes.
• Market sentiment towards the sector.

Market Outlook

• The report believes that the sector is in an upcycle, with expectations of continued growth in GGR.
• The wealth effect from property prices in lower-tier cities is driving VIP growth.

Figures and Data

• Figure 1: Stocks are pricing in only 8% GGR growth for 2018, which the report considers too conservative.
• Figure 2: Indicates an upcycle for the Macau sector.
• Figure 3: Deutsche Bank forecasts 13% GGR growth for 2018, higher than the consensus of 9%.
• Figure 4: Shows the timeline and details of new junket rooms opening in Macau.
• Figure 5: Demonstrates the high correlation between Tier-3 city property prices and VIP GGR.
• Figure 18: Shows the 12-month forward EV/EBITDA for Macau stocks.
• Figure 19: Indicates that GGR momentum drives multiple expansion.
• Figure 20: Shows the correlation between Macau share price and GGR growth.
• Figure 21: Highlights the expected low-teen EBITDA growth for the next 12 months.
• Figure 28: Compares Deutsche Bank's forecast with the consensus for 2018.

Conclusion

The report highlights a strong recovery in VIP growth and a positive outlook for the Macau gaming sector, driven by junket expansion and a positive wealth effect from property prices in Tier-3 cities. Wynn Macau and MGM China are recommended as top buys, with the potential for further growth and margin expansion. The sector is currently undervalued, and the report encourages investors to consider buying at this time.