Macau:2Q wrap,Consensus for 2H17too conservative

日期:2019-09-30编辑作者:股票财经

GGR in 2H is usually 10% higher than in 1H。

GGR in 2H is usually 10% higher than in 1H

Stocks now priced in too sharp of a slowdown in 2H

    QTD, Macau stocks have underperformed MSCI HK by 10ppt as 2Q results mostlymissed expectations. Of the 5companies reported, only Wynn delivered both GGR& EBITDA qoq growth. On 30Aug, we think Galaxy will be the next one to deliverboth GGR & EBITDA qoq growth. Recently, local checks told us that more smalljunkets are expanding footprints (Fig 4). e.g. Galaxy Macau just opened a VIP roomfor David junket in August. Historically, 2H is the high season with GGR typically10% above that in 1H. But consensus seems to be too conservative, forecasting2H17EBITDA to be merely 1% above 1H17. We think Wynn and Galaxy have thestrongest consensus upgrade potential (Fig 20). Our 2H17F EBITDA for Wynn &Galaxy is 12% above consensus. Top pick Wynn.。

    QTD, Macau stocks have underperformed MSCI HK by 10ppt as 2Q results mostlymissed expectations. Of the 5 companies reported, only Wynn delivered both GGR& EBITDA qoq growth. On 30 Aug, we think Galaxy will be the next one to deliverboth GGR & EBITDA qoq growth. Recently, local checks told us that more smalljunkets are expanding footprints (Fig 4). e.g. Galaxy Macau just opened a VIP roomfor David junket in August. Historically, 2H is the high season with GGR typically10% above that in 1H. But consensus seems to be too conservative, forecasting2H17 EBITDA to be merely 1% above 1H17. We think Wynn and Galaxy have thestrongest consensus upgrade potential (Fig 20). Our 2H17F EBITDA for Wynn &Galaxy is 12% above consensus. Top pick Wynn.

    Macau stocks fell 5% over the past 2weeks on concerns that the new facialrecognition feature on ATMs would hurt GGR. After checking with junketoperators and casino managers, we conclude that GGR weakness in the lastweek of June was only a temporary blip due to low VIP play during PresidentXi’s visit to HK. In fact, GGR/day already rebounded strongly last week. Whilewe agree with consensus that GGR growth should decelerate in 2H, we thinkstocks have now priced in too sharp of a slowdown. Macau stocks are nowpricing in GGR growth to slow sharply from 22% yoy in 2Q to 15% yoy in 3Q,while we think 3Q GGR growth should remain relatively strong at 18-20% yoy.We expect consensus upgrades after the 2Q results in late July-mid Aug. For2Q, we expect Galaxy (Hold) to post sequential EBITDA growth while MGMChina (Hold) to post the worst sequential EBITDA decline. In this 2nd phase ofVIP resurgence, we lift ests the most for Wynn Macau (Buy) and Galaxy (Hold)(Figure 18-19).

    2Q17wrap: Wynn the biggest beneficiary in this Macau recovery。

    2Q17 wrap: Wynn the biggest beneficiary in this Macau recovery

    New ATM rule has no impact on Macau

    Five of the 6Macau gaming operators had reported 2Q results. Key takeaways:

    Five of the 6 Macau gaming operators had reported 2Q results. Key takeaways:(1) In the 2Q low season, Macau GGR slipped 1% qoq as VIP (roll +4% qoq)did not grow enough to offset the seasonal softness in mass (Mass GGR -4%qoq). (2) Cotai continued to gain share, esp in the mass market. (3) Competitionsremained largely disciplined - Promotional allowances (comps) rose from 10% ofMass GGR in 1H16 to 11% in 2H16 after Wynn & Sands openings, but remainedlargely flattish in 1H17. That said, Cotai casino comps are noticeably higher thanPeninsula (11% vs 9% of Mass GGR), which may become a problem when moreCotai casinos open. Thankfully, other cost items such as junket commissions andlabour costs had remained stable (Figure 24).

    Macau stocks fell last week on concerns that, starting 3rd July, ChineseUnionPay cardholders can only get cash from the 800ATMs in Macau withfacial-recognition function. But casino floor managers told us that this new rulehas very little impact on GGR because most players can still easily get cash inpawnshops via fake UnionPay purchases. In fact, some pawnshops told usthat their fake-purchase business grew last weekend as players who couldn’tuse ATMs came to them to get cash.

    (1) In the 2Q low season, Macau GGR slipped 1% qoq as VIP (roll +4% qoq)did not grow enough to offset the seasonal softness in mass (Mass GGR -4%qoq).

    2H17 outlook: GGR growth slows, but not as much as the market fears

    Don’t look at Tier-1city property prices; Tier-3cities hold the keys to VIP

    (2) Cotai continued to gain share, esp in the mass market.

    Consensus is expecting a sharp slowdown in GGR momentum from 29% yoy inJuly to 12% yoy in Aug-Dec. While we agree that GGR growth will slow giventougher comps, we think it will only slow to 17% yoy in Aug-Dec. We're morebullish than the Street because we’ve learnt from junkets that China's Tier-3cities are minting new VIPs as the "Shanty Town Reimbursement Plan" has beenpropping up property prices in Tier-3 cities. Recall that Macau's VIP GGR is mostlycorrelated to Tier-3 city property prices (75% correlation Figure 6) , and not toTier-1 city property prices (Figure 5).

    We’re more bullish on 2H17GGR than the Street because we’ve learnt fromjunkets that most of the new VIPs actually come from Tier-3cities in China, notTier-1cities. As such, property prices in Tier-1cities have very little correlationwith Macau’s VIP GGR (Figure 9). Instead, VIP GGR is mostly correlated to Tier-3city property prices (75% correlation in Figure 10). Unlike in Tier-1citieswhere property prices have softened after govt restrictions, Tier-3city propertyprices are still on the rise. Hence, we believe Tier-3cities are still minting outfresh nouveau-riche VIP gamblers, ready to contribute to Macau.

    (3) Competitionsremained largely disciplined - Promotional allowances (comps) rose from 10% ofMass GGR in 1H16to 11% in 2H16after Wynn & Sands openings, but remainedlargely flattish in 1H17. That said, Cotai casino comps are noticeably higher thanPeninsula (11% vs 9% of Mass GGR), which may become a problem when moreCotai casinos open. Thankfully, other cost items such as junket commissions andlabour costs had remained stable (Figure 24).。

    Valuation now more reasonable after pullback; key risks

    Recent pullback creates buying opportunity; key risks

    2H17outlook: GGR growth slows, but not as much as the market fears。

    We value Macau stocks on SOTP with target multiples on 2017e EV/EBITDA.

    Macau stocks are trading at 13x DB 12m fwd EV/EBITDA, slightly below 1stddeviation over historical avg. Near term, talks about the completion of the HKMacau-Zhuhai Bridge may spark optimism on the mass market, which may reratethe sector to 15x. Longer term, sector multiple should be driven by GGRmomentum. So momentum slowdown can cap valuation multiples. We valueMacau stocks on SOTP with target multiples on 2017E EV/EBITDA. Downsiderisks include a sharp slowdown in GGR momentum, a change in investorpreference from momentum stocks to value stocks and regulatory changes.Upside risks include milder-than-expected tightening of China credit policy.

    Consensus is expecting a sharp slowdown in GGR momentum from 29% yoy inJuly to 12% yoy in Aug-Dec. While we agree that GGR growth will slow giventougher comps, we think it will only slow to 17% yoy in Aug-Dec. We're morebullish than the Street because we’ve learnt from junkets that China's Tier-3cities are minting new VIPs as the "Shanty Town Reimbursement Plan" has beenpropping up property prices in Tier-3cities. Recall that Macau's VIP GGR is mostlycorrelated to Tier-3city property prices (75% correlation Figure 6) , and not toTier-1city property prices (Figure 5).。

    Downside risks: a sharp slowdown in GGR momentum, a change in investorpreference from momentum stocks to value stocks and regulatory changes.Upside risks: milder-than-expected tightening of China's macro credit policy.

    Valuation now more reasonable after pullback; key risks。

    We value Macau stocks on SOTP with target multiples on 2017e EV/EBITDA.Downside risks: a sharp slowdown in GGR momentum, a change in investorpreference from momentum stocks to value stocks and regulatory changes.Upside risks: milder-than-expected tightening of China's macro credit policy.。

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