20170508-招商证券_香港_-System_upgrade_on_ATMs._Time_to_switch_to_mass_22页_695kb_695kb

Macau Gaming Sector Summary

Core Content and Key Insights

System Upgrade on ATMs and Its Impact

• Macau is introducing face recognition ATMs for Unionpay debit card users, aiming to tighten control over ATM withdrawals.
• The upgrade is expected to have limited impact on the fundamentals of the gaming sector, but may lead to profit-taking in VIP-focused names due to elevated expectations.
• The new system requires card users to present their ID and go through a face recognition process, while non-Unionpay users are unaffected.

Sector Performance and Investment Outlook

• The Macau gaming sector is expected to shift focus from VIP to mass, with mass-driven names likely to outperform in the coming summer peak season.
• The sector is currently trading at 23x FY17E P/E and 14x EV/EBITDA, in line with five-year historical averages.
• Investors are advised to start switching from VIP names to mass-focused ones, as the fundamentals remain solid with growing mass traffic.

Top Picks

• Melco Resorts (MLCO US) and Melco Group (200 HK) are top picks due to their wide earnings upside and inexpensive valuations.
• Sands China (1928 HK) is recommended for its potential market share expansion during the summer peak.
• Wynn Macau (1128 HK) is highlighted for its pick-up of premium mass business.
• Galaxy (27 HK) is noted for its margin expansion and decent upside.
• MGM China (2282 HK) and SJM (880 HK) are rated NEUTRAL due to market share losses to Cotai properties and uncertain future outlooks.

1Q17 Results and EBITDA Performance

• The 1Q17 results showed strong performance, with four companies beating expectations and two in line.
• Macau's GGR grew 13% YoY and 5% QoQ, driven by both VIP and mass segments.
• Wynn Macau and Melco Resorts reported the strongest EBITDA growth (49% and 46% YoY respectively).
• SJM underperformed due to market share loss in both VIP and mass segments.

VIP Segment Analysis

• VIP segment performance has improved, with a 17% YoY growth in VIP GGR and 9% in mass GGR.
• The recovery of VIP is now seen as a consensus rather than a surprise, and the sector has undergone an earnings upgrade cycle.
• VIP sustainability is still a concern, but the current recovery is deemed genuine.
• Policy risks and China's economic outlook remain potential triggers for profit-taking in VIP names.

Mass Segment Growth Drivers

• Grind mass is expected to grow faster due to increasing foot traffic.
• The rise in visitor arrivals from mainland China, especially non-IVS visitors, is a key driver of mass growth.
• The opening of new amenities like Parisian and Wynn Palace has enhanced Macau's appeal to Chinese tourists.
• Improved accessibility via high-speed rail and ferry terminals is boosting traffic to Cotai.

Market Trends and Visitor Behavior

• The number of Chinese tourists visiting Macau has rebounded, with growth in both IVS and non-IVS segments.
• The growth in visitor arrivals from non-Guangdong regions is attributed to increased attractions and improved infrastructure.
• The shift in mass growth from quality to quantity suggests a broader appeal to casual gamblers and family travelers.

Financial Overview

• The sector is experiencing a positive trend in EBITDA and profitability, with notable performance from key players.
• Galaxy (27 HK) and Melco Resorts (MLCO US) show strong financial positions and growth expectations.
• Sands China (1928 HK) is expected to benefit from the mass effect in 3Q17E and market share expansion.
• Wynn Macau (1128 HK) is noted for its premium mass business and potential for further growth.

Investment Recommendations

• Melco Resorts and Sands China are the top picks for investors due to their potential for growth and favorable valuations.
• Profit-taking is anticipated for VIP-focused names due to the sector's fundamentals being already priced in.
• Investors should consider accumulating mass-focused names during price dips to capitalize on the growing trend in the mass segment.

Conclusion

• The Macau gaming sector is transitioning from a VIP-driven model to a mass-driven one, with the latter showing strong growth potential.
• Policy changes and economic factors may create opportunities for profit-taking in VIP names.
• The shift in visitor behavior and improved infrastructure are key factors driving the mass segment's growth.
• Overall, the sector remains solid with potential for continued performance in the coming quarters.