1、Buy,Buy,Buy,Buy,Deutsche BankMarkets Research,AsiaHong KongConsumerHotels / Leisure /,IndustryMacau,Date17 September 2012Industry Update,GamingKaren Tang,Focus on premium mass - Top picksGalaxy & MPELPremium mass strategy the new product differentiatorAs Macau heads into easier comps in 4Q, the sect
2、or should continue tooutperform. But since share prices have risen 36% from July, we recommendinvestors to be more selective. Maintain Galaxy as one of our Top Picks. Butswitch our other Top Pick from Sands China to MPEL. As VIP growth is likely toslow to 5% in 2013, casinos must improve their mass
3、table yield. Key is tocapture premium mass players. On Fri Sept 7, we walked the floors of the Big7 casinos, and tallied the min bet size of over 1,000 tables. We found that City,Research Analyst(+852) 2203 Top picksGalaxy (0027.HK),HKD24.95Melco Crown (MPEL.OQ),USD13.15Companies FeaturedGalaxy (002
4、7.HK),HKD24.952011A 2012E 2013E,of Dreams (53%) and Galaxy Macau (36%) have the highest % of their masstables with min bets at HK$2,000 or above, much higher than Big 7 avg (27%).MPELs City of Dreams: Overtaking Wynn as the new leader in premium mass,P/E (x)EV/EBITDA (x)Price/book (x),15.411.24.2,15
5、.011.04.9,12.39.13.5,Aside from Sands China, we think Galaxy & MPEL will see the strongestEBITDA growth in 2013 because of their focus on premium mass. Between our,Melco Crown (MPEL.OQ),USD13.152011A 2012E 2013E,June & Sept table counts, City of Dreams (CoD) added the most tables withmin bets at HK$
6、2,000 or above (from 43% to 53% of its mass tables). In fact, in2Q, CoD already overtook Wynn Macau as the new leader in mass table yield,P/E (x)EV/EBITDA (x)Price/book (x),16.68.41.8,18.39.32.1,14.68.11.9,(US$8.2k/table/day). For Galaxy, we think it has much more room for marginexpansion as it only
7、 started its premium mass program in 2Q this year.,MGM China (2282.HK),HKD13.18 Buy2011A 2012E 2013E,Sands China: New capacity taking longer to ramp upAs Sands China is the only operator with near-term capacity expansion, wecontinue to like the stock with a 12-18 month horizon. But since the additio
8、nal,P/E (x)EV/EBITDA (x)Price/book (x),12.79.78.7,11.38.68.1,10.47.96.7,200 table quota for Phase 2 of Sands Cotai Central is likely to be phased ingradually over the next four months, rather than being immediately availableupon opening this Thurs (Sept 20), we think 4Q EBITDA will be lower thanexpe
9、cted. We trim 4Q EBITDA by 5% to US$563m, and expect consensus(currently implying US$610m) also to come down.Galaxy mass 24%). We trim 2013-14 EBITDA forthe companies by 5-12%, except for Galaxy and MPEL. Despite our earningscut, we raise TPs for all six operators by 4-31% as we roll forward to 2013
10、. Ourtop picks Galaxy and Melco Crown offer the biggest upside potentials (29% &32% respectively). Key risks include VIP demand disappointing again, or massrevenue unable to maintain solid growth, or promotional costs rising.Figure 1: Macau sector valuationCompany Target Share Upside EV/EBITDA PE EB
11、ITDA growthprice price % 2012E 2013E 2012E 2013E 2012E 2013EGalaxy HK$32.2 HK$25.0 29% 11.0x 9.1x 15.0x 12.3x 67% 16%,Sands China (1928.HK),HKD28.50 Buy2011A 2012E 2013EP/E (x) 17.5 20.8 16.6EV/EBITDA (x) 14.1 16.4 12.1Price/book (x) 4.1 6.1 5.7SJM (0880.HK),HKD16.88 Buy2011A 2012E 2013EP/E (x) 14.3
12、 13.9 13.1EV/EBITDA (x) 9.6 10.0 9.4Price/book (x) 4.1 4.7 4.4Wynn Macau (1128.HK),HKD19.80 Buy2011A 2012E 2013EP/E (x) 17.7 15.4 14.1EV/EBITDA (x) 14.8 12.7 12.3Price/book (x) 25.1 24.4 24.4This report changes estimates and price,Melco CrownMGM ChinaSands ChinaSJMWynn Macau,US$17.4HK$14.9HK$31.7HK$
13、19.0HK$22.0,US$13.2HK$13.2HK$28.5HK$16.9HK$19.8,32%13%11%12%11%,9.3x8.6x16.4x10.0x12.7x,8.1x7.9x12.1x9.4x12.3x,18.3x11.3x20.8x13.9x15.4x,14.6x10.4x16.6x13.1x14.1x,9%11%22%12%2%,11%8%34%6%7%,targets for companies under ourcoverage. For details of these changes,please see p. 6.,Macau average,11.3x,9.8
14、x,15.8x,13.5x,23%,16%,Source: Deutsche Bank estimates, Datastream_Deutsche Bank AG/Hong KongAll prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourcedfrom local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsc
15、he Bank and subjectcompanies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus,investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a sing
16、le factor in making their investment decision. DISCLOSURES ANDANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 072/04/2012.,26%,(# of,17 September 2012Hotels / Leisure / GamingMacauPremium mass strategyOn Fridays, average min bet is now almost HK$1,300 in MacauUnder the twin constrains of t
17、able cap and slower VIP growth, casinos have beenfocusing on raising mass table yield (revenue per table). In 2Q12, Macaus massrevenue per table reached US$8,239/day, up 27% yoy. A key investor question iswhether this mass market growth rate is sustainable. For the next two years, we thinkmass marke
18、t growth should be sustainable at 24% per year, as rising average min bet,which has been a key driver for the past two years, has more room to grow.Mapping the distribution of mass market tables by different min betsIn order to analyze the potential for higher min bets, we spent two Friday afternoon
19、s &evenings (June 29 & Sept 7) walking the mass gaming floors of the 7 biggest casinos inMacau. From 2pm to 8pm, we tallied the min bet size of over 1,000 tables on eachoccasion. We were able to enter most of the high-limit and premium mass areas. Forsome of the private lounges which we could not en
20、ter, we either make an estimatebased on our experience from previous casino tours or check with the casinomanagement afterwards. To be consistent, we only counted open baccarat tables. Weignore other games, such as blackjack or sci-bo, which are not consistent with baccaratplay limits. On average, w
21、e estimate that the average mass market min bet in the Big 7casinos has risen from HK$1,236 in late June by 5% to HK$1,297 in early Sept.Base on our Sept table count, 27% of tables are in premium mass (min bets HK$2,000or above), 22% are in high-limit mass (HK$1,000-1,500), 50% are in middle-mass, a
22、ndless than 2% are in grind mass (HK$200 or less).,Figure 2: Distribution of mass market tables by minimumbet size,Figure 3: Mass table yield (revenue per table per day,US$),Avg min bet: HK$1,236,+5%,HK$1,297,2Q12 +27% yoy,1,200tables counted)1,000,27%,Premium massHK$2,000,9,0008,0007,000,6,273 6,46
23、7,6,849,7,658,8,177 8,239,800600,23%,22%,High limit massHK$1,000-HK$1,500,6,0005,0004,000,4,255,4,768,5,131,5,701,400200-,50%2%June 29, Friday,50%2%Sept 7, Friday,Middle massHK$300-HK$800Grind MassHK$200,3,0002,0001,000-,1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12,Source: Deutsche Bank estimat
24、es,Source: Company data, Macau government,Which casinos have the highest exposure to premium mass?Every casino has a different definition for their premium mass segment. To beconsistent, we use the following categorization for this study:Premium mass: min bet HK$2,000 or above;High-limit mass: min b
25、et HK$1,000-1,500;,Page 2,Deutsche Bank AG/Hong Kong,17 September 2012Hotels / Leisure / GamingMacauMiddle mass: min bet HK$300-800;Grind mass: min bet HK$200 or below.Figure 4 shows the distribution of mass market tables in the Big 7 casinos by their minbet limits. Key observations include:City of
26、Dreams has the highest exposure to premium mass (53%);Galaxy Macau has the second highest exposure to premium mass (36%);Sands Cotai Central currently has the lowest % of tables at HK$2,000 min (8%);Grand Lisboa has the highest exposure to grind mass (8%);Venetian Macaus strength is in the middle ma
27、ss (HK$300-800 min bet);MGM & Wynns ability to grow premium mass is constrained by its limitedstock of hotel rooms.,Figure 4: Distribution of mass market tables by min betsize (June 29, Friday),Figure 5: Premium / high limit mass market area,Grind mass,Middle mass,High limit mass Premium mass,Openin
28、g Casino,Premium / high limit,# of,HK$200,HK$300-HK$800,HK$1000-HK$1,500,HK$2,000,date,mass area,tables,City of Dreams 13%Galaxy MacauGrand Lisboa 8%MGM Grand,34%46%58%35%,18%53%,53%36%17% 18%,12%,2Q 2010 Wynn Macau4Q 2010 MGM Macau1Q 2011 City of Dreams,Wynn Encore / Wynn ClubSupreme LoungeHigh lim
29、it West,2415-2015-20,Sands Cotai Central 3%Venetian Macau,64%61%,24%18%,8%21%,4Q 2011 MGM Macau1Q 2012 Venetian Macau,Platinum LoungeVenetian high limits area,15-2066,Wynn Macau 3%Big 7 casino avg 2%0%,57%50%25%,50%,15%22%75%,26%27%,100%,2Q 2012 Galaxy Macau2Q 2012 City of Dreams,Pavilion Clubnear G
30、rand Hyatt entrance,2320,Source: Deutsche Bank estimates,Source: Company data, Press reports, Deutsche Bank site visits,Which casino has been attacking the premium mass segment most aggressively?Between our June & Sept table counts, we found that City of Dreams added the mosttables with min bets at
31、HK$2,000 or above (from 43% to 53% of its mass tables). Wethink City of Dreams new premium lounge near the Grand Hyatt lobby had attractedmany premium mass players who used to play at Wynn Encore. According to theseplayers, the two areas shared a few similar characteristics: (1) Both have easy acces
32、s(adjacent to hotel lobby) but are away from the busiest tourist entrance. (2) Both haverelatively limited no. of tables (20-24 tables) and therefore have quieter atmosphere. (3)Both have tables with very high betting limits, some with min bets as high asHK$10,000.For years, Wynn Macau had dominated
33、 in the premium mass segment, and had alwayshad the highest mass table yield (revenue per table). But in 2Q12, City of Dreams sawits mass table yield rising to US$11.4k/table/day, and overtook Wynn Macau for the firsttime. (Note: Plaza casino also overtook Wynn Macau in 2Q12 but we exclude it fromou
34、r comparison because it is a much smaller casino with only 36 mass market tables.),Deutsche Bank AG/Hong Kong,Page 3,PropertyEBITDAmargin(HKGAAP),4.0%,4.0%,3.0%,2.5%,35%,30%,25%,20%,15%,10%,of,17 September 2012Hotels / Leisure / GamingMacau,Figure 6: Mass table win/day (US$),Figure 7: Mass table win
35、/day (US$) 2Q12,City of Dreams overtook Wynn,# of,1,400,1,010,2,905,431,2,200,289,1,860,Macau for the first time in 2Q12,ro o ms: rooms,rooms,rooms,rooms rooms,rooms,rooms,14,00012,00010,000,City of DreamsWynn Macau,14,00012,00010,0008,000,11,400,10,800,9,500,9,100,8,000,7,300,8,0006,0004,0002,000,6
36、,0004,0002,0000,4,200,0,1Q11,2Q11,3Q11,4Q11,1Q12,2Q12,City of Wynn Venetian GrandDreams Macau Macau Lisboa,GalaxyMacau,SandsMacau,SandsCotaiCentral,Source: Company data, Deutsche Bank estimates,Source: Company data, Deutsche Bank estimates,For City of Dreams, we think its focus on premium mass segme
37、nt has been a key driverfor rising mass market hold percentage, and therefore EBITDA margins. Figure 8 plottedthe relationship between no. of hotel rooms and mass market hold percentage. Themore hotel rooms a casino has, the better its ability in attracting premium masscustomers by offering them fre
38、e hotel rooms as “comps”. For Galaxy Macau, since ithas only just started its premium mass program in 2Q12, we believe it has more roomto penetrate this segment by offering more of its 2,200 hotel rooms as comps.,Figure 8: Mass market hold vs. EBITDA margin (2Q12),Figure 9: Promo allowances (as % of
39、 gross gamingrevenue),Sands Macau(289 rooms)Sands Cotai Central(1,860 rooms),Venetian Macau(2,905rooms)Wynn Macau(1,010 rooms)City of Dreams(1,400 rooms)MGM Macau(587 rooms)Galaxy MacauStarWorld (2,200 rooms)(509 rooms),4.5% GGR 1H11 2H11 1H123.8%Most aggressive: 3.6%3.5% +50bps hoh 3.4%3.3% 3.1%2.6
40、% 2.6% 2.6% 2.7%2.5% 2.4%2.1%2.0% 2.0%1.5%,3.0%,5%0%,Altira(216 rooms),1.0%0.5%,15%,20%,25%Mass market hold %,30%,35%,0.0%,Melco,MGM,Sands,Wynn,Average,Crown,China,China,Macau,Source: Company data, Deutsche Bank estimates,Source: Company data, Deutsche Bank calculations,But higher comps will lead to
41、 higher promo allowances, and thus margin impactGiven MPELs aggressive push into the premium mass segment, we have also noticed acorresponding increase in the companys promotional allowances, i.e. expenses oncomps. Among the operators, MPEL saw the highest jump in promo allowances, from2.1% of gross
42、 gaming revenue in 2H11 to 2.6% in 1H12.,Page 4,Deutsche Bank AG/Hong Kong,50%,30%,52%,48%,43%,10%,6%,4.0,3.2 3.2,10.2,-,32%,17 September 2012Hotels / Leisure / GamingMacauGaming revenue forecastsGrowth rate stabilizing as we head into easier comps in 4QIn July, Macaus gaming revenue growth decelera
43、ted to 2% yoy, lowest growth sincemid 2009. August slightly rebounded to 6% yoy and we expect September could reach10-15%. On a quarterly basis, this means 3Q growth would be close to 6% yoy. As wehead into easier comps in 4Q, we think overall growth can stabilize at 7% yoy in 4Q.,Figure 10: Macau g
44、aming revenue yoy growth,Figure 11: Quarterly gaming revenue,80%70% 62%60%48%40%28%20%10%,50% 49%22%,77%,46%,33%27%13%,57% DB forecast7%8%,(US$bn)10.08.06.04.0,3.7 3.6,Slots Mass table3.0 3.3,4.5,5.1,VIP5.6 5.9,6.9,7.3,DB forecast9.8 10.18.8 9.2 9.39.39.38.2,0%,2.0,-10%-20%,1Q08,-3%-13%-12%3Q 1Q 3Q0
45、8 09 09,1Q10,3Q10,1Q11,3Q11,1Q12,3Q12E,1Q13E,1Q08,3Q08,1Q09,3Q09,1Q10,3Q10,1Q11,3Q11,1Q12,3Q12E,1Q13E,Source: DICJ, Deutsche Bank estimates,Source: DICJ, Deutsche Bank estimates,Trimming 2012-14 Macau gaming growth forecastsFactoring in the bigger-than-expected slowdown in VIP revenue shown over Jun
46、e-July,we revise down our industry revenue growth forecast for Macau i) from 15% to 13%yoy for 2012E, ii) from 16% to 11% for 2013E and iii) from 12% to 11% in 2014E. Bysegment, we expect VIP growth would be single digit (+5-7% yoy) and mass growth willremain robust (+25-32%) over 2012-14E.Figure 12: Macau industry yoy growth by segment,
