MACAUGAMING：MACAUTOURTAKEAWAYSFOCUSONMARKETSEGMENTATION;BUYGALAXY1108

1、jun2008nov2008feb2009 may2009nov2009 feb2010 may2010nov2010 feb2011 may2011nov2011 feb2012 may2012nov2012 aug2008aug2009aug2010aug2011aug2012 17.0 (x) 15.0 11.0 7.0 5.0 november 7, 2012 macau: gaming equity research macau tour takeaways: focus on market segmentation; buy galaxy signs of vip ggr stab

2、ilization; companies guide mid-single to low- teen% growth for 2013e our key gaming industry estimates we hosted an investor tour to macau and invited a few gaming companies to join our greater china ceo conference last week. we came out from the meetings feeling more comfortable about the market ou

3、tlook and the degree of competition. much of the discussion was focused on their cotai no of devices at year-end vip tables %yoy mass tables %yoy total tables %yoy slots %yoy 2010 1,629 27% 3,162 -9% 4,791 0% 14,050 -2% 2011 1,842 13% 3,460 9% 5,302 11% 16,056 14% 2012e 1,923 4% 3,577 3% 5,500 4% 18

4、,828 17% 2013e 1,940 1% 3,760 5% 5,700 4% 18,828 0% 2014e 1,940 0% 3,760 0% 5,700 0% 18,828 0% strategies and how each of them would strive to improve profitability revenue (us$m) before the next phase of project completions in 2015-17. we maintain our vip tables %yoy 16,954 70% 24,459 44% 26,771 9%

5、 30,251 13% 34,183 13% above-consensus ggr growth forecast of 16% yoy in 2013, mainly attributed to our stronger vip ggr assumption (+13%, vs. 0-5% for mass tables ggr trend to stabilize in 4q; oct 24, 2012 simon cheung, cfa +852-2978-6102 goldman sachs (asia) l.l.c. janet lu +852-2978-1642 goldman

6、sachs (asia) l.l.c. the goldman sachs group, inc. goldman sachs does and seeks to do business with companies covered in its research reports. as a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consid

7、er this report as only a single factor in making their investment decision. for reg ac certification and other important disclosures, see the disclosure appendix, or go to analysts employed by non- us affiliates are not registered/qualified as research analysts with finra in the u.s. global investme

8、nt research 2 november 7, 2012macau: gaming macau tour and investor conference highlights (1) vip - signs of stabilization but too early to call for sharp recovery most operators attribute the drastic vip ggr slowdown since 4q of last year to weaker macro environment which affect mainlanders appetit

9、e to gamble. according to them, while there has not been much reduction in the number of players coming to macau, average bet size or spending per player has shrunk somewhat. looking ahead, they are cautiously optimistic about the market outlook and expect mid-single digit to low teen % yoy vip ggr

10、growth in 2013. while it is too early to call for a strong recovery as yet, most operators believe it is close to the bottom of the cycle and there are signs of stabilization given no further deterioration in debt collection from the players and certain junkets starting to turn less cautious regardi

11、ng credit extension. by assuming steady debt collection cycle and money velocity, we maintain our 13% vip ggr growth forecast for next year, above consensus forecasts of 0-5%. exhibit 1: macau monthly ggrexhibit 2: macau monthly ggr yoy growth (mopmn) jan feb mar apr may jun jul aug sep oct nov dec

12、2007 6,178 5,905 6,324 6,330 7,477 5,760 6,529 6,667 7,145 9,224 7,359 8,124 2008 10,338 9,362 10,123 9,118 9,793 9,974 9,286 9,613 7,088 8,869 7,551 7,657 2009 8,575 7,912 9,531 8,340 8,799 8,269 9,570 11,268 10,943 12,600 12,215 11,347 2010 13,937 13,445 13,569 14,186 17,075 13,642 16,310 15,773 1

13、5,302 18,869 17,354 18,883 2011 18,571 19,863 20,087 20,507 24,306 20,792 24,212 24,769 21,244 26,851 23,058 23,608 2012 25,040 24,286 24,989 25,003 26,078 23,334 24,579 26,136 23,866 27,700 (yoy%) jan feb mar apr may jun jul aug sep oct nov dec 2007 71% 33% 35% 40% 67% 43% 42% 41% 55% 56% 49% 34% 2

14、008 67% 59% 60% 44% 31% 73% 42% 44% -1% -4% 3% -6% 2009 -17% -15% -6% -9% -10% -17% 3% 17% 54% 42% 62% 48% 2010 63% 70% 42% 70% 94% 65% 70% 40% 40% 50% 42% 66% 2011 33% 48% 48% 45% 42% 52% 48% 57% 39% 42% 33% 25% 2012 35% 22% 24% 22% 7% 12% 2% 6% 12% 3% full yr / ytd83,022 108,772 119,369 188,345 26

15、7,868 251,011full yr / ytd4731%10%58%42%13% source: dicj.source: dicj. exhibit 3: we maintain our 13% vip ggr growth forecast for next year, above consensus forecasts of 0-5% our forecast of ggr, number of gaming tables and net win per table 200420052006200720082009201020112012e2013e2014e no of devi

16、ces at year-end vip tables %yoy mass tables %yoy total tables %yoy slots %yoy 266 82% 826 239% 1,092 180% 2,254 177% 299 12% 1,089 32% 1,388 27% 3,421 52% 565 89% 2,197 102% 2,762 99% 6,546 91% 1,124 99% 3,251 48% 4,375 58% 13,267 103% 1,063 -5% 2,954 -9% 4,017 -8% 11,856 -11% 1,279 20% 3,491 18% 4,

17、770 19% 14,363 21% 1,629 27% 3,162 -9% 4,791 0% 14,050 -2% 1,842 13% 3,460 9% 5,302 11% 16,056 14% 1,923 4% 3,577 3% 5,500 4% 18,828 17% 1,940 1% 3,760 5% 5,700 4% 18,828 0% 1,940 0% 3,760 0% 5,700 0% 18,828 0% revenue (us$m) vip tables %yoy mass tables initiate on mgm china”, dated oct 7, 2011). th

18、is said, it may be incrementally more difficult to look for new agents and players as many of the low hanging fruits may have already been picked. junkets ability to cope with sizeable agency network: the junket market has always been quite concentrated, with the top five operators (or its subsidiar

19、ies) capturing close to 80% of the vip market (exhibit 4). given the rapid growth in market size, each junket is now operating close to 500 gaming tables and dealing with over 20,000 agents. this raises questions about their ability to cope with the sizeable agency network on various issues, such as

20、 due-diligence, debt collection etc. while our forecasts suggest potential upside to consensus estimates for vip market in the near term, we maintain a more constructive stance on the long-term growth potential of the mass market segment given the above issues. exhibit 4: the junket market has alway

21、s been quite concentrated, with the top five operators (or its subsidiaries) capturing close to 80% of the vip market structure of the macau junket market junket market share no. of vip tables avg monthly rolling chip turnover (hk$bn) no. of junket agents casinos neptune c. 12-14% 220 c. 65-75 25,00

22、0 sands macao starworld golden resorts 13.5% n.a. c. 65-70 n.a. casa real grandview suncity 10.5% 221 c. 50-60 n.a. city of dreams four season jimei 9.0% n.a. c. 40-50 n.a. altira city of dreams david group 6.5% n.a. c. 30-40 n.a. city of dreams four season aerl c. 2-3% 29 c. 10-15 1,500 galaxy maca

23、u starworld a-max n.a. 5 n.a. n.a. greek mythology dore n.a. 14 n.a. n.a. the venetian the venetian city of dreams four season galaxy macau sjmgalaxy macau grand lisboa larc lan kwai fong four season jimei mgm grand sands macao galaxy macau larc mgm grand wynn the venetian grand lisboa larc mgm gran

24、d wynn mgm grand starworld the venetian wynn the venetian wynn sands cotai central source: company data. (2) market segmentation and premium mass market potential there has been much discussion about the premium-mass market segment, in which casino operators appear to have put more emphasis on. the

25、premium mass players typically have the following characteristics: gamble on cash, unlike vip players, who play on credit and have accessibility to liquidity outside of china without having to rely on junkets. younger entrepreneurs, most aged below 40, who got their wealth relatively quickly benefit

26、ing from chinas economic liberalization since the 1990s. goldman sachs global investment research 4 november 7, 2012macau: gaming some of them do not want to be seen as being associated with junkets. every operator segments the market differently. mgm, for example, has four-tiered membership program

27、s, including supreme (hk$0.8mn annual loss), platinum (hk$0.25mn annual loss), elite (hk$0.1mn annual loss) and gold (anything below). the first two tiers generated over 70% of mgms mass-market ggr last year. mpel, on the other hand, segments the market by table minimum bets and areas in the casino

28、hall. premium mass accounts for roughly half of its mass-market ggr. rationale for targeting premium mass market players we see two reasons why operators put more emphasis on market segmentation and target the premium mass market: (1) casino operators need to better serve the players who become more

29、 sophisticated as the gaming market grows; (2) with the implementation of table cap, some operators, particularly those who do not yet have cotai projects, may face capacity constraints. during the busier hours when the tables are fully occupied, they have no choice but to adjust the minimum bet siz

30、es to improve table efficiency and yield. sjm, for example, mentioned that their target is to maintain 42 hands or games per hour at their tables. operators whom we met concur that the competition in this segment is intensifying, although they remain optimistic about its growth potential, given the

31、emergence of middle- class and the growing portion of income they are willing to allocate to leisure or other discretionary spending. they do not seem to be overly concerned about the issue of table affordability and agree that overtime not every player can afford to gamble on tables, and some would

32、 have to shift to slot or electronic table games (etg). as far as profitability is concerned, mgm indicates that the average yield per premium mass table is 2.2 times that of its vip table. with premium mass tables ebitda margin 4-5x that of vip (i.e., 45-50%, vs. 10-15%), we estimate that mgms dail

33、y net win per premium mass table is roughly half of vips and double of middle-mass tables (exhibit 5). exhibit 5: we estimate that mgms daily net win per premium mass table is roughly half of vips and double of middle-mass tables vip, premium mass and general mass tables profitability (3q12) vipprem

34、ium massoverall mass net win per table per day (us$) * ebitda per table per day (us$) ebitda margin 33,170 3,317 10% 16,216 7,297 45% 10,191 4,076 40% * indicates mgm actual net win per table in 3q12 for vip and overall mass source: company data, goldman sachs research estimates. (3) regulatory and

35、cotai project updates as most operators have been awarded the land concession for their projects recently, investors expressed interest in the latest construction progress and the governments stance toward awarding table quotas to individual operators. piling work for studio city and galaxy macau 2

36、to be completed by year-end galaxy said that the construction of galaxy macau phase 2 is on track with around 700 workers on site now targeted to complete the piling work by year-end (exhibit 6). we have also taken a photo of mpels macau studio city site from city of dream (exhibit 7) which shows th

37、at construction is in progress. both companies target to complete the projects by mid to end-2015. in response to questions as to whether there are sufficient workers to complete all the cotai casino and other infrastructure projects on time, most operators goldman sachs global investment research 5

38、 november 7, 2012macau: gaming believe the government would likely relax the existing foreign labor policy which only allows companies to hire one foreign worker for each local worker they hire. as for the other cotai projects, mgm and sjm said that they are close to completing their design work and

39、 will start construction once they receive the construction permits from the macau government. exhibit 6: galaxy targets to complete the piling work of galaxy macau phase 2 by year-end site of galaxy macau phase 2 source: goldman sachs research. exhibit 7: construction of mpels macau studio city is

40、in progress site of macau studio city source: goldman sachs research. dicj meeting: table quota unlikely be awarded anytime soon at our meeting with the dijc (macaus gaming regulator), they reiterated the governments stance that macaus overall gaming table growth will be capped at 3% per annum over

41、the next 10 years, translating to around 2,000 tables to be awarded by 2023. with 200 tables confirmed to be awarded to sands cotai central (scc) early next year, this would leave 1,800 tables to be shared among the other cotai projects. among the six in the pipeline, the government has so far offic

42、ially approved and recognized five of them, including galaxy macau phase 2, macau studio city (for which mpel can also apply for gaming facilities), wynn macau, sjm and mgms cotai projects. as sands china mentioned at its 3q results conference call, they are still waiting for government approval for

43、 parcel 3 (or the parisian). hence, we expect each project would on average be granted 300-350 tables. in assessing the actual number of tables to be awarded to individual operators, dicj said that one of the key considerations is the non-gaming component these projects offer. the more non-gaming fa

44、cilities they include, the more tables dicj is likely to award to them. for the time being, dicj has not received the detailed design for any of the five projects. they will only review after receiving all projects design, which could mean the table quota is unlikely to be awarded anytime soon and p

45、erhaps could be awarded only months before the completion of the first project. this may continue to present some uncertainty on the profitability and investment return of these projects. as discussed in our oct 22 report “all operators got cotai approval; focus on potential project return”, we have

46、 not included any value for the cotai projects in our base case. our scenario analysis shows that as long as the gaming operators can secure 300 table quota and generate comparable net win per table as current casinos, the cotai projects can yield around 20% roic (exhibit 8). dicj likely to maintain

47、 status quo on gaming tax. too early on license extension we also touched on some of the other commonly asked regulatory issues. goldman sachs global investment research 6 november 7, 2012macau: gaming gaming tax dicj appears to have no intention to raise or cut its gaming tax. at the current tax ra

48、te (39% imposed on ggr), the government receives sufficient tax income to fund its infrastructure projects in the pipeline. unless macau loses a significant market share to the adjacent gaming markets (e.g., philippines, singapore etc), they do not see any imminent need to lower the gaming tax to ma

49、intain its competitiveness. extension of gaming licenses after 2020/2022 as for gaming license extension, dicj thinks it is too early to address the issue as it is still two government terms away. exhibit 8: as long as the gaming operators can secure 300 table quota and generate comparable net win p

50、er table as current casinos, the cotai projects can yield c.20% roic scenario analysis on cotai projects return sandswynn (us$mn, unless otherwise specified)chinasjmmacaumpel mgm chinagalaxy estimated capex % ownership retail space (gfa) retail rent (us$ psf) retail revenue retail ebitda retail ebit

51、da margin hotel rooms avg revenue per room (us$) hotel occupancy hotel revenue hotel ebitda hotel ebitda margin 2,500 100% 200,000 156 31 25 80% 3,300 250 85% 256 128 50% 2,000 100% 200,000 156 31 25 80% 2,000 250 85% 155 78 50% 4,000 100% 1,000,000 156 156 125 80% 1,500 250 85% 116 58 50% 2,040 60%

52、 387,500 156 60 48 80% 2,000 250 85% 155 78 50% 2,500 100% 200,000 156 31 25 80% 1,600 250 85% 124 62 50% 2,051 100% 699,654 156 109 87 80% 1,350 250 85% 105 52 50% assumed net win per table per day (us$) * - vip - mass-market total number of tables - vip - mass-market gross gaming revenue gaming eb

53、itda gaming ebitda margin total gross revenue total ebitda ebitda margin implied roic ev/ebitda ev at end-2015e discounted ev (at 2012e) value accretion of cotai project to operator implied value accretion (per share, in pricing ccy) % accretion 32,394 8,258 300 150 150 2,226 356 16% 2,513 509 20% 2

54、0% 10.0x 5,091 3,722 1,222 1.18 3% 32,394 8,258 300 150 150 2,226 356 16% 2,412 459 19% 23% 10.0x 4,586 3,353 1,353 1.90 10% 38,873 9,910 300 150 150 2,671 534 20% 2,943 717 24% 18% 10.0x 7,171 5,244 1,244 1.87 8% 32,394 8,258 300 150 150 2,226 356 16% 2,441 482 20% 24% 10.0x 4,820 3,525 891 1.62 9%

55、 32,394 8,258 300 150 150 2,226 356 16% 2,381 443 19% 18% 10.0x 4,431 3,240 740 1.52 9% 32,394 8,258 300 150 150 2,226 356 16% 2,440 496 20% 24% 10.0x 4,958 3,625 1,574 2.92 9% implied valuation including cotai project (per share, in pricing ccy) 37.620.524.920.417.736.7 * we use 2012e industry aver

56、age net win per table and assumes wynns table efficiency is at 20% premium to industry average retail space for sands, sjm and mgm indicates gs estimates. source: company data, goldman sachs research estimates. goldman sachs global investment research goldmansachsglobalinvestmentresearch 7 exhibit 9

57、: list of macaus existing projects and future cotai projects existing projectscotai projects casino sands macao the venetian macao plaza sands cotai central wynn macau sharp pull-back in vip ggr. sands china (buy)1928.hkhk$31.20hk$36.4sum-of-the-parts (12 months) key risks: (1) ) continued poor exec

58、ution and operational ramp-up of scc; (2) any regulatory risk. melco crown entertainment limited (buy)mpelus$14.97us$18.8sum-of-the-parts (12 months) key risks: (1) further deterioration in money velocity leading to a correction in vip ggr growth; (2) more competition from other casinos in cotai. me

59、lco crown entertainment (buy)6883.hkhk$38.00hk$48.9sum-of-the-parts (12 months) key risks: (1) further deterioration in money velocity leading to a correction in vip ggr growth; (2) more competition from other casinos in cotai. sjm holdings (neutral)0880.hkhk$17.70hk$18.6sum-of-the-parts (12 months) key risks: upside: approval of its several cotai projects; downside: failure to renew the royalty agreements in the third-party promoted casinos. wynn macau (neutral)1128.hkhk$23.00hk$23sum-of-the-parts (12 months) key risks: upside: cotai casinos fail to capture further market share from those i