20160106-招商证券_香港_-Macau_Gaming_40页_7mb_7mb

Industry Report Summary: Macau Gaming

Core Content

This report provides an analysis of the Macau gaming sector for the year 2016, with a focus on the performance and valuation of key operators. The overall market is expected to experience limited growth, with GGR and EBITDA projected to increase by +2% / +3% YoY, respectively, which is a more conservative outlook than the previous forecast of +4% / +10% YoY. The report emphasizes the ongoing challenges in the VIP segment, the impact of new casino openings, and the shifting market dynamics between Peninsula and Cotai properties.

Main Points

• Sector Outlook: The sector is expected to continue facing a tough operating environment in 1H16E due to continued weakness in VIP gaming, margin pressure from new properties, and weak market sentiment due to China macroeconomic concerns.
• GGR Trends: The GGR is projected to decline in 1Q16E by 27% YoY but will stabilize from 9% YoY decline in 2Q16E to low-teens YoY growth in late 2016E.
• Market Cannibalization: The opening of three new properties (Wynn Palace, Parisian Macao, MGM Cotai) is expected to increase hotel room capacity by 22%, but will also lead to continued market cannibalization.
• Company Performance: The report outlines the performance of key operators, highlighting the positive outlook for Melco Crown and Galaxy, while expressing concerns for MGM China and SJM due to earnings decline and margin pressure.
• Valuation: The report evaluates the valuation of each operator based on P/E and EV/EBITDA multiples, noting that Galaxy and Melco Crown are undervalued compared to their historical averages.

Key Information

GGR and EBITDA Projections for 2016E

Investment Ratings

• Melco Crown: Upgraded to BUY due to stabilized cost structures and strong EBITDA growth.
• Galaxy: Maintained BUY rating with a positive outlook on its ramp-up and valuation.
• Sands China: Maintained BUY rating, citing its dividend yield and strong market position.
• MGM China: Downgraded to SELL due to margin pressure and potential earnings decline.
• SJM: Maintained SELL rating due to continued earnings decline and dividend concerns.
• Wynn Macau: Maintained NEUTRAL rating due to high VIP exposure and delayed ramp-up.

Valuation and Risks

Investment Thesis

• VIP Gaming: Expected to continue under pressure in 1H16E, with a 27% YoY decline in 1Q16E and 11% YoY decline in 2Q16E.
• Mass Market: Expected to grow at 12% YoY in 2016E after a 18% decline in 2015E, with improved profitability and foot traffic.
• New Properties: The opening of Wynn Palace, Parisian Macao, and MGM Cotai is expected to cause market cannibalization but also offer potential for synergy and growth.
• Company Highlights:
  • Melco Crown: Benefiting from the ramp-up of Studio City and diversified non-gaming offerings.
  • Galaxy: Strong risk-reward profile due to its improved profitability and valuation.
  • Sands China: Attractive dividend yield and strong market position.
  • MGM China: Likely to face significant earnings decline in FY16E due to competition and opening costs.
  • SJM: Expected to lose market share and face dividend cuts.

Summary of Key Operators

• Melco Crown: Expected to deliver strong EBITDA growth and profitability, with a BUY rating.
• Galaxy: Strong recovery in EBITDA, BUY rating.
• Sands China: Attractive dividend yield, BUY rating.
• Wynn Macau: Neutral rating due to high VIP exposure and delayed ramp-up.
• MGM China: Likely to experience significant earnings decline, SELL rating.
• SJM: Continued earnings decline and dividend cuts, SELL rating.

Conclusion

The report outlines a cautious outlook for the Macau gaming sector in 2016, emphasizing the need for a conservative approach given the ongoing challenges in the VIP segment and the impact of new property openings. It highlights Melco Crown and Galaxy as top picks due to their improved fundamentals and valuation, while expressing concerns about MGM China and SJM due to potential earnings decline and margin pressure. The report also notes the importance of mass market growth and the role of new properties in shaping the sector's future performance.