Macau Gaming Beyond the current slowdown...
Transcript of Macau Gaming Beyond the current slowdown...
abcGlobal Research
Beyond the current slowdown lies
substantial structural change
High-margin mass gaming and profitable new resorts are set to change the face of Macau
Remain positive on the sector; prefer Galaxy Entertainment, with all coverage stocks remaining rated OW(V)
Even during this market slowdown, Macau gaming is still
growing, thanks to two major structural trends:
Mass gaming growth is holding up. The resilience of mass
gaming is changing the profitability of casinos and buffering
the weakness in VIP. On a long-term basis, we forecast mass
gaming will grow to 50% of Macau gross gaming revenue
(GGR) in 2020 from 27% in 2011; this change in market
mix is expected to drive margins, earnings and valuations.
New resorts are still being built. The new wave of resort
development will see USD21-28bn in new investment, all
located on Cotai. New resorts are needed to grow the market
as they provide better and different products not simply more
supply. We forecast the average new resort will achieve an
EBITDA ROA of 37% in the third year of operation. These
new resorts not only transform the earnings of the casino
companies, but should accrete substantial value to investors.
Raising average FY13 EBITDA estimate. We maintain our
2012 average EBITDA growth estimate at 17%, but raise our
2013 estimate to 22% (from 16%) on better mass gaming
margins. Our average EBITDA estimates for 2012 and 2013
are 3% and 8% above consensus, respectively.
Reiterate positive view. We reiterate our Overweight (V)
ratings on all Macau casino operators. Macau gaming stocks
are trading at an average 40% discount to our target prices,
and importantly reflect no value for future resort
developments.
Prefer Galaxy Entertainment. Galaxy continues to transform
as a company with increasing clarity surrounding new resort
developments. We see Galaxy Macau Phase II partially
opening in 2014 and Galaxy Macau Phase III in 2018.
Consumer & Retail Hotels Restaurants & Leisure
Macau Gaming Major structural change under way
12 September 2012 Sean Monaghan* Analyst The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch +65 6658 0610 [email protected]
Sachin Varma* Associate Bangalore
View HSBC Global Research at: http://www.research.hsbc.com
*Employed by a non-US affiliate of HSBC Securities (USA) Inc, and is not registered/qualified pursuant to FINRA regulations
Issuer of report: The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch
MICA (P) 038/04/2012 MICA (P) 063/04/2012 MICA (P) 206/01/2012
Disclaimer & Disclosures This report must be read with the disclosures and the analyst certifications in the Disclosure appendix, and with the Disclaimer, which forms part of it
Macau Gaming: target price changes
HSBC Target Price Current Pot’l Ticket Rating New Old Change Price Return*
Galaxy 27 HK OW(V) 38.64 35.89 8% 20.70 87%Melco Crown
6883 HK OW(V) 57.25 53.47 7% 29.60 93%
MGM China
2282 HK OW(V) 25.35 22.33 14% 12.10 116%
Sands China
1928 HK OW(V) 34.03 33.69 1% 26.20 34%
SJM 880 HK OW(V) 22.39 20.74 8% 15.92 46%Wynn Macau
1128 HK OW(V) 29.61 24.81 19% 17.04 81%
Average 9% 76%
*Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield. Source: Bloomberg, HSBC estimates; Prices as of 6 September 2012
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Figure 1: Macau casino company valuation information
Galaxy Ent. Group Melco Crown MGM China Sands China Ltd SJM Holdings Wynn Macau Ltd
Bloomberg Ticker 27 HK 6883 HK 2282 HK 1928 HK 880 HK 1128 HKMarket Cap (USDm) 11,188 6,327 5,928 27,194 11,384 11,396ADTV (USDm) 43.26 HK Listing 0.03
US Listing 52.024.49 47.51 13.95 17.87
Pricing Currency HKD HKD HKD HKD HKD HKDShare Price 20.70 29.60 12.10 26.20 15.92 17.04HSBC Target Price 38.64 57.25 25.35 34.03 22.39 29.61 Potential Return* Price change 87% 93% 110% 30% 41% 74% Dividend 0% 0% 7% 4% 6% 7% Total 87% 93% 116% 34% 46% 81% HSBC Rating Overweight (V) Overweight (V) Overweight (V) Overweight (V) Overweight (V) Overweight (V) Controlling Shareholder Lui Family Melco Int. Dev./Crown Ltd MGM Resorts Int. Las Vegas Sands Corp STDM Wynn Resorts LimitedShareholding 50% 33.4% / 33.4% 51% 70% 56% 72% 2012e GGR mix Mass gaming 23% 30% 27% 42% 34% 26%VIP gaming 77% 70% 73% 58% 66% 74%Total 100% 100% 100% 100% 100% 100% SOTP Assets (USDbn) Existing 16394 13527 9459 32759 11466 13559New projects 5832 1518 3938 2044 3914 7640Increase 36% 11% 42% 6% 34% 56% Revenue Growth 2012e 37% -1% 3% 36% 2% -4%2013e 15% 10% 3% 28% 9% 6% Profitability EBITDA 2012e (USDbn) 1.21 0.99 0.73 1.84 1.20 1.19Growth 63% 13% 12% 17% 7% 0%Margin 16% 21% 20% 26% 12% 27%ROA 18% 8% 33% 13% 16% 43%ROE 38% 13% 87% 22% 34% 164% Valuation PE 2012e 13.1x 14.5x 10.4x 22.8x 14.5x 13.5xEV/EBITDA 9.4x 6.9x 7.7x 16.5x 10.3x 11.1xDividend Yield 2012e 0.0% 0.0% 6.7% 4.4% 5.5% 7.0% Absolute Performance 1 month 7.3 12.5 10.0 11.0 10.9 0.23 months 13.5 -0.3 1.5 -0.4 18.5 -9.26 months 15.1 -11.0 -7.6 -6.1 3.6 -19.41 year 19.1 NA -13.8 4.8 -2.3 -26.92 years 251.4 NA NA 116.5 114.6 23.75 years 166.4 NA NA NA NA NA Company Overview Galaxy Entertainment
Group (GEG) has the largest undeveloped land bank in Macau.
The company currently operates six casinos and opened Galaxy
Macau on 15 May 2011.
Melco Crown Entertainment (MCE) is an innovative Macau gaming company with two casino
resorts, a third under development and a
network of slot gaming lounges.
MGM China Ltd (MGMC) currently
operates one casino resort (MGM Macau)
and is planning a second casino resort
on Cotai.
Sands China Limited (SCL) has the largest
and most profitable array of casino gaming resorts in Macau. The
company currently operates four casinos
with a further onepending.
SJM is the largest operator of casinos in Macau. Half the GGR
comes from self-promoted properties and the rest is from franchisee satellite
operations.
Wynn Macau Limited (WML) currently
operates one casino resort, Wynn Macau,including the Encore
expansion, and is building a second
casino resort on Cotai.
*Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield. Source: Company data, Thomson Reuters Datastream, HSBC estimates; Prices as of 6 September 2012
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Executive summary 4 Clear structural change 4
Share price performance 20
China and Macau gross gaming revenue 23 Structural change 23
Analysis of Macau GGR by region 25
China government stimulus and Macau GGR 27
Correlation: Economics and Macau GGR 29
Macau visitation and GGR 43 Guangdong and Hong Kong to recover 43
Macau visitation: composition 44
Macau visitation and GGR 47
New resort development 50 It’s all about Cotai 50
New resort investment 52
New supply and GGR 55
Existing and new resort ROA 57
Gross gaming revenue outlook 61 Shift to mass gaming 61
Macau quarterly GGR and market share 68
Macau annual GGR and market share 70
EBITDA outlook 75 Mass provides leverage 75
Concessionaire EBITDA and growth 77
Casino property EBITDA and growth 78
Company coverage 81 Galaxy Entertainment (GEG) 82
Melco Crown Entertainment (MCE) 86
MGM China (MGMC) 90
Sands China Ltd (SCL) 93
SJM Holdings (SJM) 97
Wynn Macau (WML) 101
Disclosure appendix 104
Disclaimer 107
Contents
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Clear structural change The fundamental outlook for Macau gaming
remains positive despite the market slowdown and
we attribute this to two major structural trends.
Mass gaming
Macau’s mass gaming segment continues to
experience 30% y-o-y growth despite China’s
economic slowdown and the noticeable stagnation
in VIP gaming.
The resilience of mass gaming is changing the
profitability of casinos and buffering weakness in
the VIP segment. Mass gaming margins continue
to be in the 40% range, significantly above VIP
junkets, which are closer to 10%.
On a long-term basis, we forecast mass gaming
will grow to 50% of gross gaming revenue (GGR)
in Macau in 2020 from 27% in 2011; this change
in market mix is expected to drive margins,
earnings and valuations.
New resort development
Over the next eight years, we forecast seven new
resorts and two resort expansions will be
completed on Cotai, costing a total of USD21bn.
A further two projects are also possible (Galaxy
Macau Phase IV, and sites 7 and 8) that could cost
a further USD7bn.
Importantly, the new resorts will use 80% of the
undeveloped land on Cotai, thereby transforming
Cotai from a construction zone to a concentrated
precinct of world-class entertainment.
We believe investor concerns over new
developments are unfounded. New resorts are
needed to grow the market, as they provide
different products and not simply more supply.
We forecast the average new resort will achieve
an EBITDA ROA of 37% in the third year of
operation. These new resorts not only transform
the earnings of the casino companies, but should
accrete substantial value to investors.
So who is best placed?
We reiterate our Overweight (V) ratings on all
Macau casino operators, with our preferred pick
being Galaxy Entertainment.
Macau gaming stocks are trading at an average
40% discount to our target prices, and importantly
reflect no value for future resort developments.
Galaxy continues to transform as a company with
increasing clarity surrounding new resort
developments. We see Galaxy Macau Phase II
partially opening in 2014 and Galaxy Macau
Phase III in 2018.
Executive summary
Beyond the macro slowdown lies substantial structural change
Resilient high-margin mass gaming and profitable new resort
developments are changing Macau and driving value
Prefer Galaxy, rated OW(V), for new resort development potential
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Share price performance since 2011
The Macau casino stocks have risen on average
by 59% since the start of 2011, outperforming the
Hang Seng Index by 76%.
The best performing stock since January 2011 has
been Galaxy, which is up 137%, followed by
Melco Crown, which is up 77%, and Sands China,
which is up 58%.
While Macau stocks have performed well, their
share prices have been volatile. The high level of
uncertainty surrounding the outlook for the
Chinese economy has at times resulted in
significant declines in share prices.
Since their highs in August 2011, share prices of
Macau gaming stocks have fallen 49% to their lows
in October 2011, only to rally 100% to another high
in April 2012. Since April, they have fallen 32% to
their July lows, only to rally again 24%.
The volatility in Macau stocks has been
accompanied by high levels of short selling,
which is particularly evident with Sands China
during June 2012 (Figure 4) and with Galaxy
since mid-2011 (Figure 5).
Figure 2: Macau gaming vs. Hang Seng Index (Jan 2011=1)
0.6
0.8
1.0
1.21.4
1.6
1.8
2.0
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
Macau Gaming IndexHang Seng
Source: Thomson Reuters Datastream, HSBC
Figure 3: Macau casino market cap (USDbn) and ADTV (USDm)
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40
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80
100
Jan-11 M ay -11 Sep-11 Jan-12 May -12
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ADTV (USDm) M arket cap (LHS)
Source: Thomson Reuters Datastream, HSBC, ADTV=average daily traded volume
Figure 4: Sands China share price and short sales (USDm)
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40
Jan-11 Jun-11 Dec-11 Jun-12
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Short sales (USDm) Sands China (LHS)
Source: Bloomberg, HSBC
Figure 5: Galaxy share price and short sales (USDm)
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Jan-11 Jun-11 Dec-11 Jun-12
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Source: Bloomberg, HSBC
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Mass gaming resilience
Mass gaming has provided the earnings buffer for
Macau casinos in the face of the stagnation in
VIP gaming.
We forecast mass gaming will grow 30% in 2012
and 25% in 2013 versus 5% and 7% for VIP
gaming, respectively.
We see Macau’s casino market EBITDA growth
bottoming in 4Q12 (at 8% y-o-y) and returning to
above 20% y-o-y growth through 2013 and 2014.
We maintain our 2012 average EBITDA growth
forecast of 17% and raise our 2013 average
EBITDA growth forecast to 22% (16%
previously) on better mass gaming margins.
Our revised average EBITDA estimates for 2012
and 2013 are 3% and 8% above consensus,
respectively (Figure 27).
Mass gaming transforming earnings
The mass segment has margins of almost 4x those
of VIP and revenue growth of 30% y-o-y has
offset the stagnation in VIP gaming.
Companies such as Sands China have the largest
portion of revenue derived from mass gaming,
and as such, are better positioned, in our view,
to experience upside potential from the
market recovery.
Companies, such as Wynn Macau, will likely
display the lowest EBITDA growth throughout
2013, as competition from the Cotai-based resorts
limits the earnings recovery (Figure 136).
In the medium term, we believe Macau casinos
will experience margin improvement (before
2016-17) as mass gaming grows in share of total
GGR (Figures 7). We believe there is a risk to
industry margins in 2016-17 when a cluster of
major resorts are scheduled to open (Figure 135).
Yield optimisation initiatives
We believe the casino companies continue to
implement initiatives to improve the efficiency of
their operations due to the pressures from slowing
growth, competition and government-imposed
challenges (labour shortages and table caps).
Floor optimisation initiatives have helped drive
earnings and margins on the mass gaming floor,
including improved labour usage via more
efficient table scheduling (openings and closings),
changes to table game mix, increasing minimum
bet levels, and pricing strategies for
complimentary non-gaming entertainment.
As for VIP gaming, casinos continue to review the
programmes and the mix of their junket operators.
Figure 6: Macau casino average EBITDA and GGR growth Figure 7: Macau GGR share 2003-20e
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0%
20%
40%
60%
80%
1Q11 3Q11 1Q12 3Q12e 1Q13e 3Q13e
Macau EBITDA grow th (LHS)Macau Total GGR grow th (RHS)Macau VIP GGR grow th (RHS)Macau mass GGR grow th (RHS)
0%
20%
40%
60%
80%
100%
2003 2006 2009 2012e 2015e 2018e
VIP Mass
Source: HSBC estimates Source: HSBC estimates
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Profitable new resort developments
We forecast the seven new resorts that will be
developed on Cotai over the next eight years will
achieve an average EBITDA ROA of 37% in the
third year of operation (Figures 8).
This rate of return is slightly less than the average
for existing Macau resorts, which achieved an
average third-year return of 39% (Figure 108).
Government approvals
While we acknowledge the opaque nature of
Macau government policy regarding both site
allocation and development approvals, we believe
the seven new projects will receive the necessary
approvals to enable them to open by end-2020.
New resort design
We believe the incremental new resorts developed
in Macau will be better designed and include
differentiated amenities than the resorts currently in
operation. We believe this to be a critical factor in
underpinning Macau’s future growth; new resorts
equal different products, not simply more supply.
Market share shifts
The opening of new resorts impacts the market
shares of existing resort developments. We
believe Cotai-based resorts will continue to take
market share from older resorts based on the
Macau Peninsula (See Figures 97, 125-127).
Completion of Cotai and visitation
We believe 80% of the undeveloped land on Cotai
will be developed by 2020, which will transform the
attractiveness of this area as a tourist destination.
Sands Cotai Central
While we acknowledge the slow start and low
initial ROA of Sands Cotai Central (SCC), we
believe the resorts performance will improve
throughout 2013 as the property is completed.
Industry susceptible to economic activity
Our long-term forecasts for project profitability
assume a stable China economy growing at an
annual GDP growth rate of 8-8.5% p.a. in real
terms, in line with our China economist’s view.
New project profitability could be impaired by a
downturn in economic activity.
Figure 8: Macau new casino resort opening dates, EBITDA (USDm) and EBITDA ROA
Expected opening date
2015e 2016e 2017e 2018e 2019e 2020e
EBITDA Galaxy Macau PII 3Q15 204 413 603 866 983 1350 Studio City 3Q15 316 432 666 905 1075 1396 Sands Site 3 1Q16 189 569 703 863 1051 Wynn Cotai 3Q16 409 1059 1590 1911 2475 SJM Cotai PI 2Q17 508 958 1126 1496 MGM Cotai 2Q17 385 603 1137 1502 Galaxy Macau PIII 4Q18 306 766 1144 SJM Cotai PII >2020 Galaxy Macau PIV >2020 Total 520 1442 3790 5932 7861 10214 ROA Galaxy Macau PII 3Q15 10% 20% 29% 41% 47% 64% Studio City 3Q15 17% 23% 35% 35% 42% 50% Sands Site 3 1Q16 6% 19% 23% 29% 35% Wynn Cotai 3Q16 10% 26% 40% 48% 62% SJM Cotai PI 2Q17 19% 37% 43% 54% MGM Cotai 2Q17 14% 23% 43% 56% Galaxy Macau PIII 4Q18 12% 30% 45% SJM Cotai PII >2020 NA NA NA Galaxy Macau PIV >2020 NA Average 13% 11% 23% 30% 40% 52%
Source: HSBC estimates
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Market growth to return in 2013
Macau’s GGR growth in 2012 has slowed faster
than we expected, and we now forecast GGR will
rise 12% in 2012 and 13% in 2013 (versus 17%
and 14% previously).
We believe Macau’s GGR growth will bottom in
4Q12 before recovering in 2013. The current
downturn in Macau is not as bad as the 2009
period, and we do not expect the recovery to be as
strong as the Chinese government is less
aggressive now on stimulus initiatives.
We forecast Macau GGR will grow 5% in 2H12
from 20% in 1H12, giving a full-year forecast of
12%. We forecast VIP gaming will decline 4% in
2H12 versus 16% growth in 1H12, and mass gaming
will grow 28% in 2H12 versus 33% in 1H12.
Industry segments
VIP gaming (69% of market in 2012e)
The dominant VIP segment has stagnated over the
past nine months, as demand has eased.
We believe casinos and junket operators remain
both well-capitalised and in a financially sound
position to extent credit. However, the industry
has been reluctant to aggressively grow the VIP
market, given the uncertain economic backdrop
and concerns over the potential for bad debts.
Mass gaming (31% of market in 2012e)
The mass market GGR continues to grow at 30%
y-o-y, and we believe this will continue for the
remainder of the year.
While market penetration in mass gaming is high
within Macau’s core market (Region 1:
Guangdong and Hong Kong), penetration across
other China regions remains inherently low.
We believe Macau casino resorts are enhancing
their marketing programmes, targeting the mass
market and making better use of travel groups
throughout China.
Macro outlook and lead indicators
China’s economic slowdown has been more
severe than we previously thought and HSBC’s
China economics team has trimmed its 2012-13
GDP growth forecasts. Over the coming months,
we expect to see increasing signs of renewed
government stimulus and monetary easing to
support growth.
Our economists now forecast China’s GDP growth
to stabilise and begin recovering in 2H12, coming
in at 7.7% in 3Q12 and 8.3% in 4Q12.
With this economic recovery, we believe Macau’s
GGR growth will also rebound, although at a
Figure 9: China GDP growth and Macau gross gaming revenue growth
6%
7%
8%
9%
10%11%
12%
13%
14%
15%
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10 1Q11 3Q11 1Q12 3Q12e 1Q13e 3Q13e
-40%
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0%
20%
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60%
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100%
120%
China GDP grow th HSBC (LHS) Macau VIP GGR grow th (RHS)
Macau mass GGR grow th (RHS) Macau Total GGR grow th (RHS)
Source: CEIC, HSBC estimates
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slower pace than in 2009 as China’s government
is likely undertake to less fiscal stimulus and
monetary easing this time around.
Leading economic indicators
HSBC’s manufacturing PMI is the strongest lead
indicator for Macau VIP GGR.
On a quarterly basis, Macau VIP growth has a
correlation coefficient of 87% with the HSBC
PMI, when the latter is lagged by one quarter
(Figure 48).
The final August reading of HSBC’s China
manufacturing PMI was revised down to its
lowest level since March 2009, at 47.6 (vs. a flash
reading of 47.8).
This extends China’s manufacturing contraction
to the tenth consecutive month. This downward
trend was mirrored by the official August
manufacturing PMI, when a lower-than-expected
result yielded the index’s first contraction (49.2
vs. 50.1 in July) since November 2011.
This PMI reading suggests Macau’s growth could
slow further in the coming months. Offsetting a
potential slowdown is the festive periods that
involve the Golden Week in October and the
December end of the year.
China electricity production (lagged one quarter)
represents the second best lead indicator to Macau
VIP growth with a correlation coefficient of 83%
(Figure 48). The Real Estate Climate Index has a
correlation coefficient of 88% to VIP growth and
when lagged one quarter the correlation is 80%
(Figure 48).
Figure 10: HSBC manufacturing PMI (lagged two months) vs. Macau VIP GGR growth
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45
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60
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
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0%
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150%
HSBC PMI Mfg. (lagged 2 mths) (LHS)M acau VIP GGR grow th (RHS)
Source: Macau DICJ, HSBC
Macau GGR as a lead indicator
When we lag VIP GGR growth in Macau by one
quarter it has a correlation coefficient of 80% with
China GDP primary industry growth and an 86%
correlation with China GDP secondary
industry growth.
Figure 11: Macau monthly gross gaming revenue (GGR) and growth (MOPm)
_________Monthly Gross Gaming Revenue __________ _______ Accumulated Gross Gaming Revenue _______ 2012 2011 Variance 2012 2011 Variance
Jan 25,040 18,571 34.8% 25,040 18,571 34.8% Feb 24,286 19,863 22.3% 49,325 38,434 28.3% Mar 24,989 20,087 24.4% 74,314 58,521 27.0% Apr 25,003 20,507 21.9% 99,317 79,028 25.7% May 26,078 24,306 7.3% 125,395 103,334 21.3% Jun 23,334 20,792 12.2% 148,729 124,126 19.8% Jul 24,579 24,212 1.5% 173,308 148,337 16.8% Aug 26,136 24,769 5.5% 199,444 173,106 15.2% Sep 22,972 21,244 8.1% 222,416 194,350 14.4% Oct 27,100 26,851 0.9% 249,516 221,201 12.8% Nov 24,785 23,058 7.5% 274,301 244,259 12.3% Dec 25,558 23,608 8.3% 299,858 267,867 11.9%
Source: Macau DICJ, HSBC estimates
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Lower but stable long-term growth
We believe Macau’s GGR will achieve long-term
growth of 11-13%, which is a 2% premium to
HSBC’s long-term nominal GDP growth forecast.
The premium to nominal GDP reflects a
combination of factors, including the wealth
effect (whereby casinos are able to leverage
off the disposable income of high net worth
individuals) as well higher market penetration
driven by improvements in infrastructure.
We believe growth in VIP gaming will slow
to around real GDP growth of 8-9% p.a. as
this market is more likely to face pressures on
saturation.
We believe mass gaming has the potential to
grow at twice the rate of real GDP growth
(15-18%), given the low level of market
penetration across China.
As stated previously, our long-term growth
forecasts outlined in Figures 13 and 128 do
not assume a future downturn in China’s
economic activity.
We have not assumed any change in
government policy that may impair the
development of Macau resorts or the ability
of patrons to visit Macau.
We have also not assumed any material
impact from the development of competing
casinos developed across Asia.
While we note major new developments in
markets, such as Manila, as well as potential
developments in Taiwan (Matsu), Vietnam
(Halong Bay), we do not believe such
developments would materially erode
Macau’s long-term growth.
Figure 12: Casino GGR and EBITDA CAGR
2007-11 2012-15e 2016-20e
Casino GGR Galaxy 30% 18% 14% Melco 81% 21% 9% MGM 174% 9% 26% Sands 24% 19% 9% SJM 24% 7% 7% Wynn 30% 7% 15% Total 34% 14% 12% EBITDA Galaxy 46% 20% 16% Melco 67% 26% 10% MGM 169% 14% 33% Sands 32% 28% 12% SJM 35% 22% 9% Wynn 35% 11% 22% Total 46% 21% 15%
Source: HSBC estimates
Figure 13: China GDP growth and Macau gross gaming revenue growth
14.2%
9.6% 9.2%10.4%
9.2%8.0% 8.3%
9.3% 9.3%8.3% 8.3% 8.3% 8.3% 8.3%
0%
2%
4%
6%
8%
10%
12%
14%
16%
2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
0%
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30%
40%
50%
60%
70%
80%
China GDP real grow th (LHS) Macau VIP GGR grow th (RHS)M acau mass GGR grow th (RHS) Macau Total GGR grow th(RHS)
Boost from new resort openings
Source: Macau DICJ, Thomson Reuters Datastream, HSBC estimates
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Stocks offering compelling value
We reiterate our Overweight (V) ratings on all
Macau casino operators, with our preferred pick
being Galaxy Entertainment.
Macau gaming stocks offer an average 76%
potential return, and importantly currently reflect no
value for future resort developments. Potential
return equals the percentage difference between the
current share price and the target price, including
the forecast dividend yield when indicated.
Galaxy continues to transform as a company with
increasing clarity surrounding new resort
developments. We see Galaxy Macau Phase II
partially opening in 2014 and Galaxy Macau
Phase III in 2018.
Figure 14: Macau share price potential return*
34%46%
81% 87%93%
116%
0%
20%
40%
60%
80%
100%
120%
140%
Sands
China
SJM Wy nn
Macau
Galax y Melco
Crow n
MGM
China
Av . +76%
Source: *Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield.
Sector remodelling
We have updated the models of all the Macau
casino companies, incorporating a top-down
market methodology with forecasts by gaming
segment, existing and new casino developments
out to 2020.
Our updated models have enabled us to strengthen
our forecasts, assess potential market share
erosion as new resort properties open across Cotai
and take share away from existing properties
operating in the market.
Galaxy Entertainment Group
We reiterate our OW(V) rating on Galaxy with a
target price of HKD38.64/share.
We like Galaxy due to the operational
performance of Galaxy Macau, which should
generate an estimated ROA of 36% in 2012,
its second year of operation.
The company announced its next major
development, Galaxy Macau Phase II, in May
2012 and this USD2.1bn project is scheduled
to open in 2015; although the casino could
potentially open in 2014.
We expect the company to proceed with the
development of Galaxy Macau Phases III and
IV to fully utilise its land bank.
Melco Crown Entertainment (MCE)
We maintain our OW(V) rating on MCE with a
target price of HKD57.25/share.
We like MCE due to the pending Studio City
project (60% owned), which we believe will
open in 2015.
In 2016, MCE should also derive 98% of
group EBITDA from Cotai, which we believe
is the future centre for gaming growth in
Macau.
We have yet to ascribe a value for the
investment in Bell Corp in the Philippines,
which is developing a casino in Manila. The
terms of the project have yet to be finalised,
but we believe the resort will open in 2013.
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Figure 15: Valuation information summary
Bloomberg Pricing HSBC Price HSBC Mcap _________________PE (x) _________________Companies Ticker currency Rating 6-Sep Target Price (USDm) 2011 2012e 2013e
Galaxy Ent. 27 HK HKD OW(V) 20.70 38.64 11,188 28.4 13.1 9.9Melco Crown 6883 HK HKD OW(V) 29.60 57.25 6,327 21.2 14.6 10.8MGM China 2282 HK HKD OW(V) 12.10 25.35 5,928 12.6 10.4 9.2Sands China 1928 HK HKD OW(V) 26.20 34.03 27,194 24.0 22.9 14.5SJM 880 HK HKD OW(V) 15.92 22.39 11,384 16.5 14.5 11.3Wynn Macau 1128 HK HKD OW(V) 17.04 29.61 11,396 15.4 13.5 11.7Total 73,416 19.7 14.8 11.2
______________ EV/EBITDA _______________ ____________ Dividend yield ______________ _______________ FCF yield ________________Companies 2011 2012e 2013e 2011 2012e 2013e 2011 2012e 2013e
Galaxy Ent. 16.1 9.3 7.1 0.0% 0.0% 0.0% 0.9% 6.5% 8.4%Melco Crown 8.5 6.7 5.1 0.0% 0.0% 0.0% 8.2% 13.2% 9.3%MGM China 9.0 7.7 6.3 0.0% 6.7% 2.2% 9.1% 11.4% 10.3%Sands China 17.8 16.5 12.3 0.0% 4.4% 5.5% 3.2% -0.9% 5.2%SJM 11.2 10.1 7.6 4.6% 5.5% 7.1% 6.9% 8.1% 10.0%Wynn Macau 10.8 11.1 10.2 7.0% 7.0% 7.0% 8.7% 3.6% 2.9%Total 12.2 10.2 8.1 1.9% 4.0% 3.6% 6.2% 7.0% 7.7% Target price calculation
Bloomberg Currency __________ SOTP __________ __________ DCF____________ Target Share PotentialCompanies Ticker Valuation Weighting Valuation Weighting Price Price Return*
Galaxy Ent. 27 HK HKD 36.11 70% 44.52 30% 38.64 20.70 87%Melco Crown 6883 HK HKD 54.46 70% 63.75 30% 57.25 29.60 93%MGM China 2282 HK HKD 24.81 70% 26.60 30% 25.35 12.10 116%Sands China 1928 HK HKD 31.05 70% 41.00 30% 34.03 26.20 34%SJM 880 HK HKD 22.09 70% 23.10 30% 22.39 15.92 46%Wynn Macau 1128 HK HKD 30.14 70% 28.36 30% 29.61 17.04 81%Disc to TP 76% Revisions
_________________ New __________________ _________________ Old ___________________ ________________Change_________________Companies SOTP DCF Target Price SOTP DCF Target Price SOTP DCF TP
Galaxy Ent. 36.11 44.52 38.64 34.45 39.25 35.89 5% 13% 8%Melco Crown 54.46 63.75 57.25 50.45 60.53 53.47 8% 5% 7%MGM China 24.81 26.60 25.35 21.88 23.38 22.33 13% 14% 14%Sands China 31.05 41.00 34.03 33.14 34.97 33.69 -6% 17% 1%SJM 22.09 23.10 22.39 21.05 20.02 20.74 5% 15% 8%Wynn Macau 30.14 28.36 29.61 25.12 24.08 24.81 20% 18% 19%Change 7% 14% 9% SOTP valuation
___________ Value from resorts ____________ ________________ Share __________________ Share Relative Relative to Existing New Total Existing New Total Price to Existing SOTPs
Galaxy 26.46 9.66 36.11 73% 27% 100% 20.70 78% 57%Melco Crown 48.97 5.50 54.46 90% 10% 100% 29.60 60% 54%MGM China 17.52 7.29 24.81 71% 29% 100% 12.10 69% 49%Sands China 29.21 1.83 31.05 94% 6% 100% 26.20 90% 84%SJM 16.47 5.62 22.09 75% 25% 100% 15.92 97% 72%Wynn Macau 19.28 10.86 30.14 64% 36% 100% 17.04 88% 57%Average 78% 22% 100% 80% 62%
Price Market cap Free float __________________________________ Performance____________________________________Companies (USDm) (USDm) 1M 3M 6M 1Y 2Y 5Y
Galaxy Ent. 20.70 11,188 5,594 7.3 13.5 15.1 19.1 251.4 166.4Melco Crown 29.60 6,327 2,088 12.5 -0.3 -11.0 NA NA NAMGM China 12.10 5,928 1,304 10.0 1.5 -7.6 -13.8 NA NASands China 26.20 27,194 8,158 11.0 -0.4 -6.1 4.8 116.5 NASJM 15.92 11,384 3,643 10.9 18.5 3.6 -2.3 114.6 NAWynn Macau 17.04 11,396 2,621 0.2 -9.2 -19.4 -26.9 23.7 NATotal 73,416 23,408 8.7 3.9 -4.2 -3.2 84.4 27.7
*Potential return equals the percentage difference between the current share price and the target price, plus the forecast dividend yield. Source: Thomson Reuters Datastream, HSBC estimates
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MGM China Ltd (MGMC)
We maintain our OW(V) rating on MGMC with a
target price of HKD25.35/share.
We like MGMC as it is cheap relative to peers
and it offers the most potential return in our
Macau coverage. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
We also expect MGMC to be awarded its Cotai
project before the end of 2013, which should be
opened in 2017. This is a slightly longer
development profile than we previously
expected (2016) as the Macau government
appears to be taking longer to award land
parcels and grant development approvals.
Sands China Ltd (SCL)
We maintain our OW(V) rating on SCL with a
target price of HKD34.03/share.
We like SCL because it is the largest single
investor in Macau, it has the largest market
share of EBITDA, and it is the largest
operator on Cotai, which we view as the
segment with the fastest growth prospects.
While Sands Cotai Central has delivered
limited earnings since opening, we believe
this will increase in 2013 as the project is
completed.
The company was awarded an extension for
the completion of Site 3 (Cotai South). This
new project will cost an estimated USD3bn
and is scheduled to open in early 2016.
SJM Holdings Ltd (SJM)
We maintain our OW(V) rating on SJM with a
target price of HKD22.39/share.
We like SJM because it is the single largest
operator of casinos in Macau (17 casinos). It
has the largest market share of gross gaming
revenue and is the largest operator in the VIP
gaming segment.
We believe the company will likely receive
approval for its new Cotai project around the
same time as MGM receives its approvals,
and as such, we expect the company to open
its first Cotai resort in 2017.
We do expect SJM to bid for and secure sites
7 and 8, although we have not assumed this
resort to be opened before 2020.
Wynn Macau Limited (WML)
We maintain our OW(V) rating on WML with a
target price of HKD29.61/share.
We like WML because it is widely viewed as
the best developer of gaming resorts in the
world and it tends to secure a higher share of
premium gaming (VIP and mass) at a lower
relative cost than its peers.
The company was awarded its Cotai project
in June 2012, which will cost USD4bn to
develop and is scheduled to open in 2016.
Investment risks
Specific risks for Macau casinos include:
China economic activity.
While HSBC’s economists forecast a recovery in
China GDP from 2H12, we acknowledge the
uncertainty in the global economy and the
implications this could have on China’s exports.
Additionally, our economists’ forecasts assume
monetary easing and fiscal stimulus will be
undertaken by Chinese government; these
measures may ultimately happen later and turn out
to be smaller than forecast.
Government regulations
Specific downside risks to our ratings and
estimates relate to the ability of the companies to
secure the necessary approvals to develop new
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resorts as planned. Generic risks to Macau casino
concessionaires include Chinese government
policies controlling travel to Macau, Macau
government restrictions over the import and use of
foreign labour, as well as the pending issue over
licence expiry in 2022.
Competition
Competition both from new and existing casinos
within Macau can impact the profitability of
company earnings, so can the development of new
casinos across Asia.
Business concentration risk also exists, given that
the Macau casino companies derive the majority
of their earnings from assets located in Macau
Valuation methodology
Our target prices for GEG, MCE, MGMC, SCL,
SJM and WML are outlined in Figure 15 and are
based on a weighted average (70/30) of SOTP and
DCF valuations.
Sum-of-the-parts (SOTP) valuation
Gaming stocks globally are regularly valued
based on multiples of operational EBITDA, which
places value on short-term earnings.
In addition to the valuation of existing operations,
we incorporate explicit forecasts for new
projects as well as license renewal fees into our
SOTP valuations.
We ascribe different valuation multiples to
different areas of Macau for the valuation of
existing casino resorts as we believe they will
provide different earnings growth in the future.
We ascribe a 14x multiple to Cotai-based
properties, as we believe the Cotai area
will achieve the highest relative growth in
the market.
We ascribe a 13x multiple to properties
located in the Greater Lisboa area of the
Macau Peninsula.
We ascribe a 10-12x multiple to casino
resorts located out of the above two major
areas.
For new pending resort developments, we
ascribe a 10x multiple to forecast
EBITDA, although we ascribe a 12x for
Wynn Cotai, given the track record of the
company in new project execution.
The valuation multiples we ascribe to Macau
casino resorts are slightly higher than those we
apply to the valuation of other casino resorts in
other parts of Asia including Singapore (11.0x)
and Manila in the Philippines (10x).
The higher multiple applied for Macau reflects the
higher growth rate expected versus regional peers
coupled with the fact that Macau casinos do not
pay income tax.
Figure 16: Macau casino EBITDA multiples
10.0x
12.0x
12.0x
13.0x
13.0x
13.0x
13.0x
14.0x
14.0x
14.0x
14.0x
14.0x
0.0x 5. 0x 10. 0x 15.0x
Oceanus
Altira
Sands Macau
StarWorld
Grand Lisboa
MGM Macau
Wy nn Macau
Venetian
Plaza
City of Dreams
Galax y Macau
Sands CC
Source: HSBC estimates
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Figure 17: Asia casino EBITDA multiples
8.0x
10.0x
11.0x
12.0x
13.0x
14.0x
0.0x 5.0x 10.0x 15.0x
Malay sia
Philippines
Singapore
Macau other
Macau Peninsula
M acau Cotai
Source: HSBC estimates
DCF valuation
DCF enables the assessment of long-term issues,
although such forecasts are more challenging,
given uncertainty surrounding government policy,
future expansion, new developments, license
renewal, and gaming taxes.
All six companies under coverage are trading at a
discount to DCF of between 31% and 54%.
We believe this inherently reflects the uncertainty
surrounding future cash flows relating to future
market growth, the ability to undertake expansion,
the issue surrounding perpetuity (license renewal)
and gaming taxes.
Key valuation assumptions
Our target prices for the six covered stocks are
based on the following broad assumptions.
No change to gaming taxation
No imposition of corporate tax on
Macau-based businesses
Second wave of operation expansion for
all concessionaires on Cotai
No fallout from the various US authority
investigations
Continuity of gaming licenses
The Macau government has yet to clearly
provide a framework for the casino market
after the expiry of the current concessions.
However, it has made two clear statements:
All concessionaires have met their
respective investment requirements, and
as such, there is no reason for the licenses
not to be extended.
Formal negotiations around the concessions
will commence in December 2017.
While investors fear potential outcomes, such as
non-renewal or higher gaming taxes, we do not
believe these risks to be realistic.
We have assumed in all our valuations that each
concessionaire will pay a one-off license fee
based on the number of devices that they use and
that such a payment would be made in 2018.
Our assumed license renewal payments are
outlined in the following table.
Figure 18: Assumed license renewal fee payable (USDm)
Devices Tables EGMs Galaxy 1,620 6,350 Melco Crown 967 7,000 MGM China 820 4,000 Sands China 1,500 8,700 SJM 2,008 6,400 Wynn Macau 900 3,500 Total 7,815 35,950 Renewal fee Tables EGMs Total Galaxy 3,240 318 3,558 Melco Crown 1,934 350 2,284 MGM China 1,640 200 1,840 Sands China 3,000 435 3,435 SJM 4,016 320 4,336 Wynn Macau 1,800 175 1,975 Total 15,630 1,798 17,428
Source: HSBC estimates
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Figure 19: Galaxy sum-of-the-parts valuation (HKD) Figure 20: Melco Crown sum-of-the-parts valuation (HKD)
26.46
36.11
20.70
9.66
05
101520
25303540
Ex isting
assets
Pending
assets
SOTP Share Price
48.97
54.46
29.60
5.50
0
10
20
30
40
50
60
70
Ex isting
assets
Pending
assets
SOTP Share Price
Source: HSBC estimates Source: HSBC estimates
Figure 21: MGM China sum-of-the-parts valuation (HKD) Figure 22: Sands China sum-of-the-parts valuation (HKD)
17.52
24.81
12.10
7.29
0
5
10
15
20
25
30
Ex isting
assets
Pending
assets
SOTP Share Price
29.21 31.0526.20
1.83
0
5
10
15
20
25
30
35
Ex isting
assets
Pending
assets
SOTP Share Price
Source: HSBC estimates Source: HSBC estimates
Figure 23: SJM sum-of-the-parts valuation (HKD) Figure 24: Wynn Macau sum-of-the-parts valuation (HKD)
16.47
22.09
15.92
5.62
0
5
10
15
20
25
Ex isting
assets
Pending
assets
SOTP Share Price
17.04
30.14
19.28
10.86
0
5
10
15
20
25
30
35
Ex isting
assets
Pending
assets
SOTP Share Price
Source: HSBC estimates Source: HSBC estimates
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Figure 25: Macau casino company earnings revisions
_____________________ New _______________________ ______________________ Old _______________________ _____________ Difference _____________(million) 2011a 2012e 2013e 2014e 2011a 2012e 2013e 2014e 2012e 2013e 2014e
Revenue Currency Galaxy Ent. HKD 41,151 58,421 67,100 74,255 41,151 58,216 66,151 73,234 0% 1% 1% Melco Crown USD 3,831 3,865 4,262 4,851 3,831 4,216 4,693 5,332 -8% -9% -9% MGM China HKD 20,294 21,388 22,222 25,139 20,294 21,959 25,135 28,166 -3% -12% -11% Sands China USD 4,881 6,195 7,960 9,686 4,881 6,324 8,056 9,027 -2% -1% 7% SJM HKD 76,093 77,456 84,476 96,773 76,093 85,122 94,794 103,922 -9% -11% -7% Wynn Macau HKD 29,475 28,476 30,508 32,789 29,475 27,166 30,371 34,330 5% 0% -4% Total HKD 234,789 264,007 299,396 342,052 234,789 274,464 315,638 351,365 -4% -5% -3% Revenue growth Galaxy Ent. 114% 42% 15% 11% 114% 41% 14% 11% Melco Crown 45% 1% 10% 14% 45% 10% 11% 14% MGM China 63% 5% 4% 13% 63% 8% 14% 12% Sands China 17% 27% 28% 22% 17% 30% 27% 12% SJM 32% 2% 9% 15% 32% 12% 11% 10% Wynn Macau 31% -3% 7% 7% 32% -8% 12% 13% Total 42% 12% 13% 14% 42% 17% 15% 11% EBITDA Currency Galaxy Ent. HKD 5,749 9,384 11,455 13,212 5,749 9,371 11,304 13,050 0% 1% 1% Melco Crown USD 881 993 1,177 1,383 881 941 1,100 1,250 6% 7% 11% MGM China HKD 4,933 5,427 5,973 7,022 4,933 5,141 5,771 6,361 6% 3% 10% Sands China USD 1,577 1,839 2,473 3,330 1,577 1,837 2,324 2,800 0% 6% 19% SJM HKD 6,903 7,407 9,297 11,462 6,903 7,563 8,477 9,403 -2% 10% 22% Wynn Macau HKD 8,127 8,115 9,104 9,908 8,127 7,650 7,600 8,279 6% 20% 20% Total HKD 44,832 52,365 64,223 78,272 44,832 51,338 59,791 68,602 2% 7% 14% EBITDA growth Galaxy Ent. 158% 63% 22% 15% 158% 63% 21% 15% Melco Crown 80% 13% 19% 17% 80% 7% 17% 14% MGM China 74% 10% 10% 18% 74% 4% 12% 10% Sands China 30% 17% 34% 35% 30% 17% 27% 20% SJM 47% 7% 26% 23% 47% 10% 12% 11% Wynn Macau 34% 0% 12% 9% 34% -6% -1% 9% Total 54% 17% 23% 22% 54% 15% 16% 15%
Source: HSBC estimates
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______________________New_______________________ ______________________ Old________________________ _____________ Difference ______________ 2011a 2012e 2013e 2014e 2011a 2012e 2013e 2014e 2012e 2013e 2014e
EPS (HKD/USD) Currency Galaxy Ent. HKD 0.73 1.58 2.09 2.53 0.73 1.58 2.05 2.49 0% 2% 2% Melco Crown USD 0.18 0.26 0.35 0.46 0.18 0.23 0.30 0.38 14% 17% 22% MGM China HKD 0.86 1.17 1.32 1.61 0.86 1.09 1.27 1.43 7% 4% 12% Sands China USD 0.14 0.15 0.23 0.34 0.14 0.16 0.21 0.27 -8% 11% 26% SJM HKD 0.96 1.10 1.41 1.75 0.96 1.09 1.23 1.36 0% 14% 29% Wynn Macau HKD 1.11 1.26 1.45 1.60 1.11 1.23 1.22 1.35 3% 19% 18% EPS growth Galaxy Ent. 220% 117% 32% 21% 220% 117% 30% 21% Melco Crown -2729% 42% 35% 31% -2729% 25% 30% 27% MGM China 68% 35% 13% 22% 68% 26% 17% 13% Sands China 70% 5% 58% 46% 70% 14% 31% 29% SJM 36% 14% 28% 25% 36% 13% 13% 11% Wynn Macau 30% 14% 15% 10% 30% 11% -1% 11% DPS (HKD/USD) Currency Galaxy Ent. HKD 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA NA NA Melco Crown USD 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 NA NA NA MGM China HKD 0.00 0.82 0.26 0.32 0.00 0.82 0.25 0.29 0% 6% 11% Sands China USD 0.00 0.15 0.19 0.27 0.00 0.15 0.17 0.22 -1% 10% 24% SJM HKD 0.73 0.88 1.12 1.40 0.73 0.90 1.01 1.12 -3% 11% 25% Wynn Macau HKD 1.20 1.20 1.20 1.20 1.20 1.20 1.20 1.20 0% 0% 0% DPS payout ratio Galaxy Ent. 0% 0% 0% 0% 0% 0% 0% 0% Melco Crown 0% 0% 0% 0% 0% 0% 0% 0% MGM China 0% 70% 20% 20% 0% 75% 20% 20% Sands China 0% 101% 80% 80% 0% 94% 81% 81% SJM 76% 80% 80% 80% 49% 83% 82% 82% Wynn Macau 108% 95% 83% 75% 89% 98% 98% 89% DPS growth Galaxy Ent. NA NA NA NA NA NA NA NA Melco Crown NA NA NA NA NA NA NA NA MGM China NA NA -68% 22% NA NA -70% 16% Sands China NA NA 25% 46% NA NA 13% 29% SJM 109% 20% 28% 25% 289% 23% 12% 11% Wynn Macau 58% 0% 0% 0% 280% 0% 0% 0%
Source: HSBC estimates
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Figure 27: HSBC forecasts vs. consensus estimates
_____________2012 HSBC Estimates______________ _____________2012 Cons. Estimates______________ __________________ Variance ___________________(million) Currency EBITDA NPAT EBITDA NPAT EBITDA NPAT
Galaxy Ent. HKD 9,384 6,615 8,786 6,451 7% 3% Melco Crown USD 993 424 882 380 13% 12% MGM China HKD 5,427 4,431 5,212 4,285 4% 3% Sands China USD 1,839 1,189 1,954 1,290 -6% -8% SJM HKD 7,407 6,109 7,620 6,480 -3% -6% Wynn Macau HKD 8,115 6,545 8,071 6,732 1% -3% Average 3% 0%
_____________2013 HSBC Estimates______________ _____________2013 Cons. Estimates______________ __________________ Variance ___________________ Currency EBITDA NPAT EBITDA NPAT EBITDA NPAT
Galaxy Ent. HKD 11,455 8,749 10,000 7,608 15% 15% Melco Crown USD 1,177 578 961 445 22% 30% MGM China HKD 5,973 5,017 5,668 4,614 5% 9% Sands China USD 2,473 1,874 2,559 1,853 -3% 1% SJM HKD 9,297 7,981 8,471 7,278 10% 10% Wynn Macau HKD 9,104 7,524 8,922 7,540 2% 0% Average 8% 11%
_____________2014 HSBC Estimates______________ _____________2014 Cons. Estimates______________ __________________ Variance ___________________ Currency EBITDA NPAT EBITDA NPAT EBITDA NPAT
Galaxy Ent. HKD 13,212 10,623 11,561 9,026 14% 18% Melco Crown USD 1,383 769 1,080 546 28% 41% MGM China HKD 7,022 6,107 6,410 5,298 10% 15% Sands China USD 3,330 2,741 2,982 2,285 12% 20% SJM HKD 11,462 10,126 9,438 8,134 21% 24% Wynn Macau HKD 9,908 8,295 10,008 8,505 -1% -2% Average 14% 19%
Source: Thomson Reuters Datastream, HSBC estimates
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Share price performance Figure 28: Macau and other Asia casino company share price performance
Bloomberg Pricing Price Market cap Free float __________________ Performance ___________________ Ticker currency 6 Sep (USDm) (USDm) 1M 3M 6M 1Y 2Y 5Y
Macau Galaxy Ent. 27 HK HKD 20.70 11,188 5,594 7.3 13.5 15.1 19.1 251.4 166.4 Melco Crown 6883 HK HKD 29.60 6,327 2,088 12.5 -0.3 -11.0 NA NA NA MGM China 2282 HK HKD 12.10 5,928 1,304 10.0 1.5 -7.6 -13.8 NA NA Sands China 1928 HK HKD 26.20 27,194 8,158 11.0 -0.4 -6.1 4.8 116.5 NA SJM Holdings 880 HK HKD 15.92 11,384 3,643 10.9 18.5 3.6 -2.3 114.6 NA Wynn Macau 1128 HK HKD 17.04 11,396 2,621 0.2 -9.2 -19.4 -26.9 23.7 NA Melco Crown MPEL US USD 11.90 6,327 2,088 12.7 1.4 -1.4 -4.5 164.9 -14.4 Average 73,416 23,408 8.7 3.9 -4.2 -3.8 126.5 166.4 SE Asia Alliance Global AGI PM PHP 12.22 2,950 2,950 9.1 2.3 3.7 18.6 65.1 135.0 Belle Corp BEL PM PHP 4.85 1,223 1,223 -1.0 0.2 9.7 18.3 124.1 358.5 Bloomberry BLOOM PM PHP 9.49 2,400 2,400 -5.3 9.1 -63.6 90.6 26.5 153.1 Genting Berhad GENT MK MYR 8.70 10,383 6,334 -2.9 -11.0 -20.3 -8.9 -6.4 10.8 Genting Malaysia GENM MK MYR 3.51 6,688 3,545 4.8 -0.6 -9.3 3.5 16.2 -11.4 Genting Singapore GENS SP SGD 1.33 13,056 6,267 1.9 -11.0 -15.3 -16.4 -25.3 120.6 Genting HK 678 HK HKD 2.46 2,465 592 -4.3 3.8 -8.9 -8.2 -21.9 -18.8 Average 39,165 23,310 0.3 -1.0 -14.8 13.9 25.5 106.8 Indices KL Comp Index 888 -1.5 2.5 1.2 10.0 12.2 16.5 Straits Times Index 2,989 -2.7 8.3 2.0 7.8 -1.5 -12.1 Hang Seng Index 19,209 -4.0 3.7 -7.7 -2.5 -10.1 -20.1
Source: Thomson Reuters Datastream, HSBC
Figure 29: Macau casino company share prices December 2009-September 2012 (base December 2009=1)
0
1
2
3
4
5
6
7
8
Dec-09 Apr-10 Aug-10 Dec-10 Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
Galax y Entertainment SJM Sands China
Wy nn Macau MGM China Melco Crow n
Source: Thomson Reuters Datastream, HSBC
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Figure 30: Galaxy share price vs. Hang Seng Figure 31: Melco Crown share price vs. Hang Seng
0
5
10
15
20
25
30
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.5
1.0
1.5
2.0
2.5
Galax y Galax y v s Hang Seng Index
0
5
10
15
20
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.5
1.0
1.5
2.0
2.5
MPEL MPEL vs Hang Seng Index
Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC
Figure 32: MGM China share price vs. Hang Seng Figure 33: Sands China share price vs. Hang Seng
5
7
9
11
13
15
17
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.2
0.4
0.6
0.8
1.0
1.2
MGM China MGM China v s Hang Seng
0
5
10
15
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25
30
35
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.5
1.0
1.5
2.0
2.5
Sands China SCL v s Hang Seng Index
Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC
Figure 34: SJM share price vs. Hang Seng Figure 35: Wynn Macau share price vs. Hang Seng
0
5
10
15
20
25
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.5
1.0
1.5
SJM SJM v s Hang Seng Index
10
15
20
25
30
Apr-11 Aug-11 Dec-11 Apr-12 Aug-12
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
Wy nn Macau Wynn Macau v s Hang Seng
Source: Thomson Reuters Datastream, HSBC Source: Thomson Reuters Datastream, HSBC
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Figure 36: Market capitalisation of global gaming companies (USDbn)
0
50
100
150
200
250
Sep-07 Sep-08 Sep-09 Sep-10 Sep-11
US Australia Asia
Source: Thomson Reuters Datastream, HSBC
Figure 37: Market capitalisation of Asia casino companies (USDbn)
0
20
40
60
80
100
120
140
160
Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12
Other Asia Genting Group Macau
Source: Thomson Reuters Datastream, HSBC
Figure 38: Market capitalisation of Macau casino companies (USDbn)
0
10
20
30
4050
60
70
80
90
100
Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12
SJM Galax y Wy nn Macau Sands China MPEL MGM China
Source: Thomson Reuters Datastream, HSBC
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Structural change China is Macau’s most important market, accounting
for 85% of visitations and 89% of GGR. This is
reflected in the strong correlation between Macau’s
casino GGR and China’s real GDP growth, real
estate sector, electricity production and HSBC PMI.
HSBC’s PMI (manufacturing) is the strongest lead
indicator for Macau VIP GGR, when lagged one
quarter, and has an 87% correlation coefficient.
The recent economic slowdown has highlighted
the structural change in Macau’s casino industry.
While the VIP gaming segment has displayed
weakness, the mass gaming segment has shown
substantial resilience.
In the following pages, we provide an overview of
the relationship between Macau’s gross gaming
revenue and key economic variables. Our analysis
shows that Macau’s gross gaming revenue is
becoming more resilient and less volatile than it
has in the past due to the broadening in the
domicile of patrons, and importantly the growth
of mass gaming.
China and Macau gross gaming revenue
China to contribute about 90% of Macau 2012e GGR
Diversification of patrons and growth in mass gaming highlights
structural changes
We expect lower volatility in future market growth
Figure 39: Macau GGR growth and China GDP growth
9.6% 9.8% 9.7% 9.5%9.1%
8.9%
8.1%
7.6% 7.7%
8.3% 8.3% 8.3% 8.4% 8.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12e 4Q12e 1Q13e 2Q13e 3Q13e 4Q13e
-10%
0%
10%
20%
30%
40%
50%
60%
70%
China GDP grow th HSBC (LHS) Macau VIP GGR grow th (RHS)
Macau mass GGR grow th (RHS) Macau Total GGR grow th (RHS)
Source: Macau DICJ, HSBC estimates
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China GDP growth outlook
The annual pace of China’s growth has slowed for
six quarters in a row, reaching 7.6% in the second
quarter of 2012.
June’s industrial production (IP) growth
moderated from 9.6% y-o-y in May 2012 to 9.5%
y-o-y in June 2012 – the second lowest level since
the financial crisis of 2008. Electricity production
growth dropped from 2.7% y-o-y in May to 0%
y-o-y in June, the lowest level since mid-2009.
The slowdown in China GDP growth reflects a
cooling of both internal and external demand.
China’s export growth has slowed markedly to an
annual rate of 9.2% in the first half of 2012 from
more than 20% last year, as the slowdown of
Western economies (in particular the Eurozone)
started to bite.
China’s domestic demand has also slowed in
response to aggressive tightening measures
introduced during the course of 2011 to fight
inflation and tame the property bubble. The
downturn in the property sector is the key reason
behind the notable deceleration of fixed asset
investment growth from around 24% y-o-y last
year to 20.4% in 1H12.
Europe and US growth uncertainty
The near-term economic growth in China over the
next two quarters may be further influenced by
global instability, particular in Europe and the US
(Figure 40).
While HSBC’s economists forecast a rebound in
China GDP growth in 3Q12 and 4Q12, we note
the continued uncertainty in the global economy.
The China economy has been adversely impacted
by a decline in exports to Europe due to the
economic contraction there associated with the
sovereign debt crisis.
HSBC’s economists believe the Beijing
government is well placed to undertake further
fiscal stimulus and monetary easing to address the
slowing economy. The extent and timing of these
initiatives should influence GDP growth.
Figure 40: HSBC’s forecast for China GDP growth
9.6%9.8% 9.7%
9.5%
9. 1%8.9%
8.1%
7.6% 7.7%
8.3% 8.3% 8.3% 8.4% 8.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12e 4Q12e 1Q13e 2Q13e 3Q13e 4Q13e
Europe and US w eakness
w eighs on China GDP grow th
Source: CEIC, HSBC estimates
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Analysis of Macau GGR by region We have divided China’s provinces, including the
Special Administrative Region of Hong Kong,
into four regions to highlight the respective
contributions to Macau GGR and visitations
(Figure 41).
We define Region 1 as including the two areas
closest to Macau, Guangdong and Hong Kong,
which collectively contribute the largest share of
both annual visitation and GGR.
Guangdong has substantial manufacturing
industries and the decline in global economic
activity can significantly impact this region in
terms of demand for casino gaming.
Region 2 is the second most important region and
includes the provinces that immediately neighbour
Guangdong. We estimate Region 2 contributes
15% of mass GGR and 20% of VIP GGR.
Region 3 includes the next group of provinces
including Yunnan in the south and Beijing and
Shanghai in the North. We estimate Region 3
contributes 10% of mass GGR and 10% of
VIP GGR.
Figure 41: China contribution to Macau gross gaming revenue in 2012e
Beijing
Shanghai
Guangdong
Sichuan
Henan
AnhuiTibet (Xizang)
Yunnan
Xinjiang
Qinghai
Ningxia
Inner Mongolia
Guangxi
Hainan
Gansu
Shanxi
Shaanxi
Shandong
Hubei
HuizhouHunan
Fujian
Jiangxi
Zhejiang
Jiangsu
Hebei
Liaoning
Jilin
Harbin
Hong KongMacau
Dalian
Qingdao
Region 1
Region 2
Region 3
Region 4
Chongqing
Tianjin
Region 156% of 2012 GGR
Region 218% of 2012 GGR
Region 310% of 2012 GGR
Region 44% of 2012 GGR
Beijing
Shanghai
Guangdong
Sichuan
Henan
AnhuiTibet (Xizang)
Yunnan
Xinjiang
Qinghai
Ningxia
Inner Mongolia
Guangxi
Hainan
Gansu
Shanxi
Shaanxi
Shandong
Hubei
HuizhouHunan
Fujian
Jiangxi
Zhejiang
Jiangsu
Hebei
Liaoning
Jilin
Harbin
Hong KongMacau
Dalian
Qingdao
Region 1
Region 2
Region 3
Region 4
Chongqing
Tianjin
Region 156% of 2012 GGR
Region 218% of 2012 GGR
Region 310% of 2012 GGR
Region 44% of 2012 GGR
Source: HSBC estimates
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Region 4 represents the provinces furthest from
Macau and we estimate these will contribute 4%
of Macau’s GGR in 2012.
The Other markets that contribute visitation and
gross gaming revenue to Macau include foreign
countries with the largest being Taiwan, South
Korea, and the countries from Southeast Asia.
The development of new casinos in markets, such as
Singapore, have tempered demand for Macau
gaming. However, we believe Macau continues to
provide a unique destination due to the high
concentration of casino resorts, particularly on Cotai.
Figure 42: Segments of Macau gross gaming revenue 2012e
GGR
China
China
Region 1 Region 2 Region 3 Region 4 Other
31%
69%
15%85%
70% <5%15% 10% <5%
50% 15%20% 10% 5%
35%65%
VIP Gross Gaming Revenue
Mass Gross Gaming Revenue
VIP Junket VIP Direct
Other Mass High-end Mass
Region 1 Region 2 Region 3 Region 4 Other
GGR
China
China
Region 1 Region 2 Region 3 Region 4 Other
31%
69%
15%85%
70% <5%15% 10% <5%
50% 15%20% 10% 5%
35%65%
VIP Gross Gaming Revenue
Mass Gross Gaming Revenue
VIP Junket VIP Direct
Other Mass High-end Mass
Region 1 Region 2 Region 3 Region 4 Other
Source: HSBC estimates
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China government stimulus and Macau GGR We believe Macau’s casino industry will benefit
from fiscal stimulus and monetary easing
initiatives undertaken by the China government.
The reduction in both interest rates and the banks’
required reserve ratio (RRR) will ease liquidity.
Along with moderate fiscal stimulus programmes,
these measures should ease pressure on consumption
and support visitation and expenditure in Macau.
Government initiatives in 2012
Beijing has started to take more decisive action to
fuel growth in domestic demand to offset the
impact of the global slowdown. However, the
government initiatives so far have been less than
those implemented in 2009, as it is wary of
distorting the property market and causing
inflationary pressures.
There have been three required reserve ratio cuts
since November 2011, two interest rates cuts
since 2008, faster approvals for infrastructure
projects, tax incentives to buy energy-efficient
home appliances, and lower regulatory barriers
for investment.
Our economists believe Beijing has ample room
to undertake monetary easing. Inflation is falling
faster than expected. Headline CPI already
dropped to a 29-month low of 2.2% y-o-y in June,
well below the government’s 4% target and will
likely drop further. The deflation of producer
prices intensified to -2.1% y-o-y in June and wage
growth is slowing noticeably.
Our economists expect monetary easing to mainly
come in the form of quantitative easing. We
expect the People’s Bank of China (PBoC) to
deliver another 200bp of RRR cuts during the rest
of this year (releasing RMB1.6-2trn in liquidity),
inject liquidity via open market operations, and
also suspend the issuance of PBoC bills to bring
monetary growth back up towards the target rate.
Our economists expect quantitative easing to be
more effective than rate cuts in reducing funding
constraints for investment projects.
What matters more for the large ongoing
infrastructure projects is the supply of funding
rather than the cost of funding. For instance, some
railway projects were suspended last year due to a
lack of funding.
Figure 43: Growth in total bank loans in China and Macau GGR growth
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul -10 Jan-11 Jul-11
-50%
0%
50%
100%
150%
Loans (RMB bn) (LHS) Loans grow th (RHS)Macau Mass GGR (y oy ) (RHS) Macau VIP GGR (y oy) (RHS)
Source: CEIC, Macau DICJ, HSBC
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Most resumed after the issuance of Ministry of
Railway bonds. Looser credit policy this year has
also eased funding constraints.
We believe fiscal easing should play an even
more important role in supporting growth, and
project approvals are being accelerated.
There is plenty of room for more aggressive tax
cuts and fiscal spending. China has over RMB3trn
of fiscal cash deposits and the overall debt level is
still low.
Despite the slowing growth, fiscal revenue growth
expanded 12.2% y-o-y in 1H12, faster than
nominal GDP growth over the same period.
Tax cuts are already helping to take the pressure
off corporations, especially small- and medium-
sized enterprises (SMEs), which are responsible
for over 50% of tax revenue and 80% of the
country’s employment. For example, starting this
year, tax on small companies with an annual
taxable income below RMB60,000 (USD9,430)
has been halved.
There are also direct spending projects on public
housing and infrastructure. Beijing recently
allocated RMB26.5bn to subsidise sales of
energy-saving home appliances.
One solution to increasing investment efficiency
would be to unleash private investment. Opening
up more sectors to private investment could
supplement public investment, especially at a time
when some local authorities are stretched.
2009 stimulus
The 2008-09 stimulus package was announced on
November 2008 and totalled RMB4trn spread out
over 2009.
These initiatives were undertaken to address the
severe impact on China’s economy brought about
by the global financial crisis, which started in
2007-08.
The government expenditure was undertaken via
the central government, China banks and through
local governments (Figure 45) and dispersed
across many different segments of the economy.
Figures 59-64 highlight how Macau’s gross
gaming revenue was likely boosted in 2010 by the
government stimulus and easing initiatives
undertaken in 2009.
Figure 44: China fiscal stimulus 2009
Purpose RMBtrn
Public Infrastructure 1.50 Rural development 0.37 Social welfare 0.40 Post-earthquake reconstruction 1.00 Technology advancement 0.37 Sustainable development 0.21 Education, cultural projects 0.15 Total 4.00
Source: HSBC
Figure 45: China fiscal stimulus allocation 2009
Central
Gov ernment
30%
Bank
Lending
39%
Local
Government
s
31%
Source: HSBC
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Correlation: Economics and Macau GGR Figure 46: Correlation between China economic statistics and Macau total GGR growth (quarterly)
Economic data Correlation with Total GGR
growth
Correlation with VIP GGR
growth
Correlation with Mass GGR
growth
Indication for GGR Next releasedate
China HSBC Mfg PMI 83% 87% 72% HSBC Mfg PMI has the strongest correlation with Macau GGR when the PMI data lags the GGR growth data by one quarter. This means PMI data for any given quarter can be an indication of whether there would be growth or decline in GGR in the following quarter. For the same lag, HSBC Mfg PMI has a stronger correlation with VIP GGR growth (87%) than Mass GGR growth (72%).
27-Sep-12
China Real Estate Climate Index
79% 88% 66% Real Estate Climate Index (RECI) has the strongest correlation with Macau GGR when the RECI data is of the same quarter as the GGR growth data. This means RECI data for any given quarter can be an indication of whether there would be growth or decline in GGR in the same quarter. For no lag, RECI has a stronger correlation with VIP GGR growth (88%) than Mass GGR growth (66%).
NA
China Electricity Production Growth
78% 83% 77% China Electricity Production (EP) growth has the strongest correlation with Macau GGR when the EP growth data lags the GGR growth data by one quarter. This means EP growth data for any given quarter can be an indication of whether there would be growth or decline in GGR in the following quarter. For the same lag, EP growth has a stronger correlation with VIP GGR growth (83%) than Mass GGR growth (77%).
18-Oct-12
China Industrial Production Growth
71% 87% 79% China Industrial Production (IP) growth has the strongest correlation with Macau GGR when the IP growth data is of the same quarter as the GGR growth data. This means IP growth data for any given quarter can be an indication of whether there would be growth or decline in GGR in the same quarter. For no lag, IP growth has a stronger correlation with VIP GGR growth (87%) than Mass GGR growth (79%).
18-Oct-12
China Real GDP growth
67% 75% 74% China Real GDP growth has the strongest correlation with Macau GGR when the GDP growth data lags the GGR growth data by one quarter. This means real GDP growth data for any given quarter can be an indication of whether there would be growth or decline in GGR in the following quarter. For the same lag, China Real GDP growth has similar correlations with VIP GGR growth (75%) than Mass GGR growth (74%).
18-Oct-12
China HSBC Services PMI
57% 61% 50% HSBC Services PMI has the strongest correlation with Macau GGR when the PMI data lags the GGR growth data by two quarters. This means PMI data for any given quarter can be an indication of whether there would be growth or decline in GGR two quarters later. For the same lag, HSBC Services PMI has a stronger correlation with VIP GGR growth (61%) than Mass GGR growth (50%).
7-Oct-12
China Consumer Confidence Index
45% 59% 60% Consumer Confidence Index (CCI) has the strongest correlation with Macau GGR when the CCI data is of the same quarter as the GGR growth data. This means CCI data for any given quarter can be an indication of whether there would be growth or decline in GGR in the same quarter. For no lag, CCI has a stronger correlation with Mass GGR growth (60%) than VIP GGR growth (59%).
15-Oct-12
China Money Supply (M2) growth
42% 44% 21% China Money supply (M2) growth has the strongest correlation with Macau GGR when the M2 growth data lags the GGR growth data by three quarters. This means M2 growth data for any given quarter can be an indication of whether there would be growth or decline in GGR three quarters later. For the same lag, M2 growth has a stronger correlation with VIP GGR growth (44%) than Mass GGR growth (21%).
10-15 Oct-12
China Bank Loans growth
35% 38% 20% China bank loans growth has the strongest correlation with Macau GGR when the loans growth data lags the GGR growth data by three quarters. This means loans growth data for any given quarter can be an indication of whether there would be growth or decline in GGR three quarters later. For the same lag, loans growth has a stronger correlation with VIP GGR growth (38%) than Mass GGR growth (20%).
10-15 Oct-12
China Retail Price Index
80% 74% 87% Retail Price Index (RPI) has the strongest correlation with Macau GGR when the RPI data leads the GGR growth data by one quarter. This means RPI data for any given quarter can be an indication of whether there was growth or decline in GGR in the previous quarter. For the same lag, RPI has a stronger correlation with Mass GGR growth (87%*) than VIP GGR growth (74%*).
15-Oct-12
Source: Bloomberg, National Bureau of Statistics China, HSBC estimates Note: All growth data used are y-o-y growth *Retail Price Index data leads the GGR data
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Figure 47: Macau total gross gaming revenue correlation with China economic statistics
______________________Economic data lagged by ______________________ ___________________ Macau GGR growth lagged by_____________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP growth -15% 20% 49% 67% 62% 41% 2% -39% -57% GDP: Primary Industry growth -77% -67% -19% 30% 70% 86% 65% 39% 6% GDP: Secondary Industry growth -59% -44% -3% 47% 76% 75% 50% 9% -19% GDP: Tertiary Industry growth -41% -9% 15% 44% 53% 53% 34% 4% -20% IP growth -33% 2% 47% 70% 71% 45% 5% -36% -54% Construction output value growth -29% -1% 8% 27% 21% 15% 16% 11% -1% Consumer Confidence Index -37% -12% 19% 42% 45% 32% 8% -14% -29% Consumer Price Index -86% -65% -15% 34% 70% 80% 68% 46% 20% Retail Price Index -88% -74% -26% 25% 66% 80% 71% 49% 24% PMI - Mfg -8% 29% 66% 61% 36% 0% -28% -39% -38% PMI - Non Mfg. -29% 6% 45% 61% 55% 32% -2% -25% -39% HSBC Headline PMI Mfg. -15% 31% 71% 83% 58% 17% -25% -51% -52% HSBC Headline PMI Services 12% 47% 57% 52% 27% -4% -36% -63% -59% Index: Shanghai Stock Exchange: Composite -38% 4% 45% 56% 46% 29% 7% -11% -26% Index: Shanghai Stock Exchange: Commerce -31% 8% 49% 65% 56% 44% 18% -9% -35% Index: Shanghai Stock Exchange: Properties -27% 11% 44% 47% 30% 9% -9% -18% -25% Electricity production growth -13% 21% 69% 78% 63% 20% -29% -54% -54% Real Estate Climate Index (RECI) -48% -5% 45% 79% 79% 53% 14% -26% -51%
______________________Economic data lagged by ______________________ _______________________Macau GGR lagged by ________________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP 83% 84% 86% 87% 88% 85% 84% 82% 80% GDP: Primary Industry 44% 51% 62% 55% 53% 48% 46% 44% 41% GDP: Secondary Industry growth 87% 88% 90% 90% 92% 90% 89% 87% 85% GDP: Tertiary Industry 84% 84% 85% 87% 87% 84% 83% 82% 79% IP growth -18% -14% -12% -16% -25% -28% -32% -38% -41% Construction output value 68% 70% 75% 71% 73% 69% 68% 66% 64% Consumer Confidence Index -55% -53% -53% -57% -59% -59% -61% -65% -65% Consumer Price Index 2% 17% 25% 30% 31% 25% 17% 6% -3% Retail Price Index 2% 16% 25% 32% 33% 29% 21% 11% 2% PMI - Mfg -18% -20% -23% -24% -25% -28% -34% -31% -25% PMI - Non Mfg. 25% 19% 18% 18% 12% 15% 8% 3% -26% HSBC Headline PMI Mfg. 5% 4% -2% -10% -19% -27% -34% -39% -36% HSBC Headline PMI Services -46% -47% -53% -59% -61% -64% -65% -68% -63% Index: Shanghai Stock Exchange: Composite -4% -1% -2% -6% -13% -27% -38% -50% -54% Index: Shanghai Stock Exchange: Commerce 55% 57% 51% 42% 32% 18% 4% -9% -21% Index: Shanghai Stock Exchange: Properties 7% 7% 5% 0% -5% -18% -32% -43% -48% Electricity production 93% 95% 97% 97% 95% 93% 90% 88% 86% Real Estate Climate Index (RECI) 0% 0% -4% -15% -29% -37% -44% -51% -55%
Source: CEIC, Macau DICJ, HSBC
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Figure 48: Macau VIP gross gaming revenue correlation with China economic statistics
_____________________ Economic data lagged by_______________________ ______________________VIP GGR growth lagged by ______________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP growth -19% 15% 48% 75% 74% 53% 16% -30% -51% GDP: Primary Industry growth -78% -71% -29% 19% 63% 80% 64% 43% 16% GDP: Secondary Industry growth -63% -50% -10% 46% 80% 86% 65% 24% -8% GDP: Tertiary Industry growth -44% -13% 9% 41% 52% 57% 47% 25% 4% IP growth -38% -3% 46% 79% 87% 61% 13% -31% -48% Construction output value growth -31% -1% 4% 29% 39% 18% 14% 6% 0% Consumer Confidence Index -40% -17% 18% 47% 59% 52% 28% 5% -13% Consumer Price Index -89% -71% -25% 22% 60% 74% 66% 49% 30% Retail Price Index -90% -80% -37% 13% 56% 74% 69% 49% 29% PMI - Mfg -10% 26% 68% 67% 47% 12% -18% -35% -30% PMI - Non Mfg. -32% 3% 42% 58% 54% 38% 2% -23% -36% HSBC Headline PMI Mfg. -19% 29% 69% 87% 64% 26% -19% -48% -45% HSBC Headline PMI Services 10% 46% 61% 64% 40% 7% -36% -72% -56% Index: Shanghai Stock Exchange: Composite -38% 4% 44% 53% 36% 20% 2% -14% -24% Index: Shanghai Stock Exchange: Commerce -33% 8% 50% 70% 57% 38% 5% -20% -33% Index: Shanghai Stock Exchange: Properties -25% 14% 47% 45% 19% -8% -25% -32% -20% Electricity production growth -17% 17% 67% 83% 72% 31% -22% -49% -45% Real Estate Climate Index (RECI) -53% -10% 42% 82% 88% 66% 24% -20% -48%
_____________________ Economic data lagged by_______________________ _________________________ VIP GGR lagged by__________________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP 83% 84% 86% 86% 88% 85% 84% 81% 79% GDP: Primary Industry 45% 51% 60% 55% 54% 49% 46% 43% 41% GDP: Secondary Industry growth 86% 87% 89% 90% 91% 90% 89% 86% 85% GDP: Tertiary Industry 83% 84% 84% 86% 87% 84% 83% 81% 79% IP growth -18% -13% -10% -14% -23% -26% -31% -38% -41% Construction output value 68% 70% 74% 71% 73% 69% 68% 65% 64% Consumer Confidence Index -56% -53% -52% -55% -57% -57% -60% -64% -64% Consumer Price Index -1% 14% 25% 31% 33% 28% 19% 8% -1% Retail Price Index -1% 14% 24% 32% 35% 31% 23% 13% 3% PMI - Mfg -17% -19% -21% -22% -24% -28% -34% -31% -26% PMI - Non Mfg. 25% 21% 20% 21% 13% 16% 7% 2% -28% HSBC Headline PMI Mfg. 5% 6% 0% -8% -17% -26% -34% -40% -37% HSBC Headline PMI Services -45% -45% -51% -57% -61% -64% -65% -68% -63% Index: Shanghai Stock Exchange: Composite -5% -1% -1% -5% -13% -26% -38% -49% -52% Index: Shanghai Stock Exchange: Commerce 54% 57% 52% 44% 33% 18% 4% -10% -22% Index: Shanghai Stock Exchange: Properties 6% 8% 6% 1% -6% -19% -33% -43% -47% Electricity production 92% 94% 97% 97% 95% 93% 90% 87% 85% Real Estate Climate Index (RECI) 0% 1% -2% -12% -27% -35% -43% -51% -56%
Source: CEIC, Macau DICJ, HSBC
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Figure 49: Macau mass gross gaming revenue correlation with China economic statistics
______________________ Economic data lagged by _______________________ _____________________ Mass GGR growth lagged by _____________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP growth 4% 34% 61% 74% 67% 40% -3% -42% -65% GDP: Primary Industry growth -59% -40% 5% 50% 83% 85% 63% 35% 2% GDP: Secondary Industry growth -29% -11% 22% 61% 83% 77% 44% 6% -27% GDP: Tertiary Industry growth -23% 9% 34% 57% 63% 60% 42% 21% -6% IP growth -11% 18% 56% 81% 79% 42% -4% -43% -63% Construction output value growth -11% 2% 12% 17% 1% -7% -19% -27% -10% Consumer Confidence Index -19% 4% 30% 51% 60% 47% 26% 4% -19% Consumer Price Index -60% -32% 14% 58% 85% 85% 66% 39% 12% Retail Price Index -65% -42% 2% 48% 82% 87% 70% 42% 14% PMI - Mfg -2% 36% 64% 59% 41% -4% -24% -32% -37% PMI - Non Mfg. -14% 19% 46% 57% 49% 4% -19% -34% -49% HSBC Headline PMI Mfg. -1% 33% 66% 72% 44% 0% -41% -56% -53% HSBC Headline PMI Services 12% 37% 50% 48% 26% -5% -41% -59% -51% Index: Shanghai Stock Exchange: Composite -34% 14% 41% 50% 39% 16% 1% -9% -32% Index: Shanghai Stock Exchange: Commerce -19% 22% 50% 55% 41% 9% -22% -41% -62% Index: Shanghai Stock Exchange: Properties -33% 7% 37% 33% 12% -10% -22% -21% -16% Electricity production growth 2% 34% 70% 77% 61% 11% -37% -60% -62% Real Estate Climate Index (RECI) -21% 12% 48% 71% 66% 38% -3% -39% -63%
______________________ Economic data lagged by _______________________ ________________________ Mass GGR lagged by_________________________ 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
Economic indicator Real GDP 83% 85% 88% 89% 87% 85% 84% 85% 81% GDP: Primary Industry 42% 52% 65% 57% 51% 46% 46% 46% 41% GDP: Secondary Industry growth 88% 89% 91% 92% 91% 90% 89% 90% 86% GDP: Tertiary Industry 84% 84% 87% 89% 86% 84% 83% 84% 81% IP growth -18% -15% -17% -23% -31% -33% -34% -37% -39% Construction output value 66% 70% 77% 73% 71% 68% 68% 68% 64% Consumer Confidence Index -51% -51% -56% -62% -63% -63% -65% -69% -68% Consumer Price Index 11% 23% 27% 27% 25% 19% 11% 1% -7% Retail Price Index 11% 23% 28% 29% 28% 22% 16% 6% -2% PMI - Mfg -20% -25% -28% -29% -26% -29% -33% -30% -24% PMI - Non Mfg. 23% 14% 12% 11% 8% 11% 10% 7% -21% HSBC Headline PMI Mfg. 2% -2% -9% -17% -23% -29% -33% -36% -32% HSBC Headline PMI Services -49% -52% -57% -62% -62% -63% -64% -67% -64% Index: Shanghai Stock Exchange: Composite -1% -1% -4% -9% -14% -27% -39% -51% -57% Index: Shanghai Stock Exchange: Commerce 56% 54% 46% 36% 28% 17% 6% -6% -18% Index: Shanghai Stock Exchange: Properties 8% 7% 4% -1% -5% -16% -30% -42% -50% Electricity production 95% 96% 97% 97% 94% 92% 91% 90% 89% Real Estate Climate Index (RECI) 0% -3% -11% -23% -37% -43% -46% -50% -51%
Source: CEIC, Macau DICJ, HSBC
Co
nsu
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Ho
tels Restau
rants &
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eptem
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33
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Figure 51: Macau VIP gross gaming revenue correlation with China economic statistics
______________________ Economic data lagged by _______________________ _____________________ VIP GGR growth lagged by_______________________ Economic indicator 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
China: Money Supply M0 growth -1% 53% 28% 47% 60% 6% 24% -23% -38% China: Money Supply M1 growth 15% 45% 68% 65% 44% 5% -36% -65% -63% China: Money Supply M2 growth 35% 44% 40% 15% -17% -55% -81% -74% -34% China: Loan growth 32% 38% 45% 17% -15% -51% -81% -69% -36% China: Loan: Short-Term growth -27% -34% -7% -16% -17% -13% -24% 4% 32% China: Loan: Medium- & Long-Term growth 22% 40% 52% 50% 35% 4% -30% -62% -68% China: Consumer Loan growth 15% 41% 59% 68% 63% 33% -6% -50% -78% China: Consumer Loan: Short-Term growth 22% 58% 71% 82% 46% 2% -23% -67% -76% China: Consumer Loan: Short-Term growth 15% 39% 57% 66% 63% 34% -5% -49% -78%
Source: CEIC, Macau DICJ, HSBC
Figure 50: Macau total gross gaming revenue correlation with China economic statistics
_______________________Economic data lagged by________________________ ____________________ Macau GGR growth lagged by _____________________Economic indicator 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
China: Money Supply M0 growth 6% 54% 26% 50% 60% -4% 17% -32% -48% China: Money Supply M1 growth 18% 44% 60% 58% 39% 0% -38% -62% -60% China: Money Supply M2 growth 34% 42% 34% 7% -22% -52% -70% -59% -24% China: Loan growth 32% 35% 35% 16% -12% -46% -71% -55% -26% China: Loan: Short-Term growth -27% -25% -10% 4% 7% 3% -9% 13% 32% China: Loan: Medium- & Long-Term growth 24% 38% 42% 44% 31% -1% -32% -58% -61% China: Consumer Loan growth 21% 44% 59% 65% 58% 26% -13% -56% -81% China: Consumer Loan: Short-Term growth 30% 64% 75% 81% 41% -3% -28% -71% -76% China: Consumer Loan: Short-Term growth 20% 42% 57% 63% 57% 26% -13% -55% -80%
Source: CEIC, Macau DICJ, HSBC
Figure 52: Macau mass gross gaming revenue correlation with China economic statistics
______________________ Economic data lagged by _______________________ ____________________ Mass GGR growth lagged by______________________Economic indicator 4 Qtrs 3 Qtrs 2 Qtrs 1 Qtr No lag 1 Qtr 2 Qtrs 3 Qtrs 4 Qtrs
China: Money Supply M0 growth 33% 64% 41% 40% 38% -23% 1% -48% -51% China: Money Supply M1 growth 17% 33% 39% 24% -3% -40% -68% -73% -61% China: Money Supply M2 growth 19% 21% 4% -25% -46% -73% -82% -59% -26% China: Loan growth 20% 20% 12% -20% -48% -72% -88% -58% -28% China: Loan: Short-Term growth -21% -1% 28% 21% 21% 23% 6% 26% 34% China: Loan: Medium- & Long-Term growth 21% 21% 18% 7% -13% -39% -64% -73% -67% China: Consumer Loan growth 33% 38% 40% 38% 24% -8% -40% -67% -79% China: Consumer Loan: Short-Term growth 58% 71% 72% 63% 15% -21% -41% -77% -68% China: Consumer Loan: Short-Term growth 31% 34% 37% 35% 23% -8% -40% -67% -80%
Source: CEIC, Macau DICJ, HSBC
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China GDP, liquidity and Macau GGR Figure 53: Macau GGR growth versus China GDP primary industry growth
-5%
0%
5%
10%
15%
20%
25%
30%
M ar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 -40%
-20%
0%
20%
40%
60%
80%
100%
120%
GDP:Primary Industry (y oy ) (LHS) Macau VIP GGR grow th (RHS)Macau Mass GGR grow th (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 54: Macau GGR growth versus China GDP secondary industry growth
0%
5%
10%
15%
20%
25%
M ar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
GDP:Secondary Industry (y oy ) (LHS) Macau VIP GGR grow th (RHS)Macau Mass GGR grow th (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 55: Macau GGR growth versus China GDP tertiary industry growth
0%
5%
10%
15%
20%
25%
30%
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 M ar-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
GDP:Tertiary Industry (y oy ) (LHS) Macau VIP GGR grow th (RHS)
Macau Mass GGR grow th (RHS)
Source: CEIC, Macau DICJ, HSBC
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Figure 56: Macau GGR growth versus China imports and China exports growth
-40%
-20%
0%
20%
40%
60%
80%
100%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
100%
Macau GGR (y oy ) (LHS) All prov inces - Ex port (RHS) All prov inces - Import (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 57: Macau GGR growth versus China export growth by region
-40%
-20%
0%
20%
40%
60%
80%
100%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
Macau GGR (y oy ) (LHS) Region 1 (RHS) Region 2 (RHS) Region 3 (RHS) Region 4 (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 58: Macau GGR growth versus China import growth by region
-60%
-35%
-10%
15%
40%
65%
90%
115%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-60%
-35%
-10%
15%
40%
65%
90%
115%
Macau GGR (y oy ) (LHS) Region 1 (RHS) Region 2 (RHS) Region 3 (RHS) Region 4 (RHS)
Source: CEIC, Macau DICJ, HSBC
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Figure 59: Macau VIP GGR growth versus change in China M2
0%
5%
10%
15%
20%
25%
30%
35%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
China: Money Supply M2 (LHS) Macau VIP GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 60: Macau Mass GGR growth versus change in China M2
0%
5%
10%
15%
20%
25%
30%
35%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-10%
0%
10%
20%
30%
40%
50%
60%
70%
China: Money Supply M2 (LHS) Macau Mass GGR (yoy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 61: Macau GGR growth versus China bank lending rate
-250
-200
-150
-100
-50
0
50
100
150
200
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Nominal Lending Rate: Short Term: 1 Year - Change v s 1 y r ago (LHS)Macau VIP GGR (yoy ) (RHS)Macau Mass GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
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Figure 62: Macau Mass GGR growth versus one-year change in China bank required reserve ratio
-400
-200
0
200
400
600
800
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul -11 Jan-12 Jul-12
-10%
0%
10%
20%
30%
40%
50%
60%
70%
RRR prev ailing v s 1 y r ago (LHS) Macau Mass GGR (y oy ) (RHS)
monetary tightening
monetary easing
monetary tightening
monetary easing
Source: CEIC, Macau DICJ, HSBC
Figure 63: Macau VIP GGR growth versus one-year change in China bank required reserve ratio
-400
-200
0
200
400
600
800
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
RRR prev ailing v s 1 y r ago (LHS) M acau VIP GGR (y oy) (RHS)
monetary tightening
monetary eas ing
m onetary tightening
monetary easing
Source: CEIC, Macau DICJ, HSBC
Figure 64: Macau Mass GGR growth versus China bank short-term loans growth
0%
5%
10%
15%
20%
25%
30%
35%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Consumer short term loans grow th (LHS) Macau VIP GGR (y oy ) (RHS) Macau Mass GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
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HSBC PMI, electricity production and Macau GGR Figure 65: Macau GGR growth versus HSBC PMI Manufacturing
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
35
40
45
50
55
60
65
HSBC Headline PMI Mfg. (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 66: Macau GGR growth versus HSBC PMI Services
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
45
47
49
51
53
55
57
59
HSBC Headline PMI Serv ices (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 67: Macau GGR growth versus China electricity production
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-12%
-2%
8%
18%
28%
38%
48%
Electricity production (y oy grow th) (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
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China consumer confidence, CPI and Macau GGR Figure 68: Macau GGR growth versus HSBC China Consumer Confidence Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
95
100
105
110
115
Consumer Confidence Index (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 69: Macau GGR growth versus HSBC China Retail Price Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
95
98
101
104
107
110
Retail Price Index (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 70: Macau GGR growth versus China Consumer Price Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
95
98
101
104
107
110
Consumer Pr ice Index (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
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China share market, property and Macau GGR Figure 71: Macau GGR growth versus Shanghai Stock Exchange Composite Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
0
1000
2000
3000
4000
5000
6000
7000
Index : Shanghai Stock Ex change: Composite (RHS) Macau VIP GGR grow th (LHS)Macau Mass GGR grow th (LHS)
Source: Thomson Reuters Datastream, Macau DICJ, HSBC
Figure 72: Macau GGR growth versus Shanghai Stock Exchange Commerce Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
0
1000
2000
3000
4000
5000
Index : Shanghai Stock Ex change: Commerce (RHS) Macau VIP GGR grow th (LHS)Macau Mass GGR grow th (LHS)
Source: Thomson Reuters Datastream, Macau DICJ, HSBC
Figure 73: Macau GGR growth versus Shanghai Stock Exchange Property Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
Index : Shanghai Stock Ex change: Properties (RHS) Macau VIP GGR grow th (LHS)Macau Mass GGR grow th (LHS)
Source: Thomson Reuters Datastream, Macau DICJ, HSBC
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Figure 74: Macau GGR growth versus China floor space started
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-20%
0%
20%
40%
60%
80%
Floor Space Started y td (y oy grow th) (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 75: Macau GGR growth versus China real estate investment YTD (y-o-y growth)
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
0%
5%
10%
15%
20%
25%
30%
35%
40%
Real estate inv estment y td (y oy grow th) (RHS) Macau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
Figure 76: Macau GGR growth versus Real Estate Climate Index
-40%
0%
40%
80%
120%
160%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
90
95
100
105
110
Real Estate Climate Index (RECI) (RHS) M acau VIP GGR grow th (LHS) Macau Mass GGR grow th (LHS)
Source: CEIC, Macau DICJ, HSBC
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Hong Kong-Guangdong retail sales and Macau GGR Figure 77: Macau Mass GGR growth versus Hong Kong retail sales growth
-20%
-10%
0%
10%
20%
30%
40%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-10%
0%
10%
20%
30%
40%
50%
60%
70%
HK: Retail sales grow th (LHS) Macau Mass GGR grow th (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 78: Macau VIP GGR growth versus Guangdong retail sales growth
0%
5%
10%
15%
20%
25%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Guangdong Retail Sales (y oy ) (LHS) VIP GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 79: Macau GGR growth versus Guangdong retail sales growth
0%
5%
10%
15%
20%
25%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-10%
0%
10%
20%
30%
40%
50%
Guangdong Retail Sales (y oy ) (LHS) Mass GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
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Guangdong and Hong Kong to recover We believe visitation to Macau will stabilise in
2H12 and return to more consistent growth in
2013 as China’s economy stabilises.
Visitation has been weak over the past six months and started to slow in late 2011.
Visitation from China fell for the first time since 2009 on a y-o-y basis in May 2012.
Almost 60% of Macau’s visitors come from
Mainland China and a further 27% come from
Hong Kong.
60% of Macau’s annual visitors come from
China’s Region 1, split almost evenly
between Hong Kong and Guangdong.
12% of Macau visitors come from China’s
Region 2, 9% from Region 3, and 4% from
Region 4.
Visitors from outside of China constitute 10-
15% of Macau’s annual visitation.
54% of Macau’s annual visitors are day trip
visitors and 46% stay overnight; 40% of daily
visitors are from Hong Kong.
Mass GGR has a closer correlation with
same-day visitors whereas VIP GGR growth
has a stronger correlation with visitation from
overnight guests.
Macau visitation and GGR
Guangdong and Hong Kong contribute 60% of Macau’s visitors
Economic weakness has impaired visitor growth
Growth expected to recover in 2013
Figure 80: China visitor growth to Macau versus Mass and VIP GGR growth
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
China v isitors (y oy ) (LHS) VIP GGR (y oy ) (RHS) Mass GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
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Macau visitation: composition
Figure 81: Annual visitation to Macau by major market (m)
0
5
10
15
20
25
30
35
40
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e
-20%
-10%
0%
10%
20%
30%
40%
50%
China Hong Kong Taiw an Sth Korea Other Total v isitors grow th (RHS)
Source: CEIC, Macau DICJ, HSBC estimates
Figure 82: Macau visitation from major China Regions (no. of visitors)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Jul-10 Sep-10 Nov -10 Jan-11 Mar-11 May -11 Jul-11 Sep-11 Nov -11 Jan-12 Mar-12 May -12
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Region 1 Region 2 Region 3 Region 4 Total v is itors: China + HK (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 83: Macau visitation from China Region 1 (no. of visitors)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
1,800,000
Jul-10 Sep-10 Nov -10 Jan-11 Mar-11 May -11 Jul-11 Sep-11 Nov -11 Jan-12 Mar-12 May -12
-30%
-20%
-10%
0%
10%
20%
30%
40%
Guangdong Hongkong Guangdong v is itors (y oy ) (RHS) HK v is itors (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
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Figure 84: Visitation to Macau by same day (no. of visitors)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1,600,000
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
China sam e Day Hong Kong same day Other same day
Source: Macau DSEC, HSBC
Figure 85: Visitation to Macau by overnight guests (no. of visitors)
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
China ov ernight Hong Kong ov ernight Other ov ernight
Source: Macau DSEC, HSBC
Figure 86: Visitation to Macau and Hong Kong from China (no. of visitors)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
HK: Visitor Arriv als: China Macau: Visitor Arriv als: China
IVS scheme adjusted
to ev ery tw o months IVS schem e adjusted
to max , 7 day s stay
Source: Macau DSEC, HSBC
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Figure 87: Macau monthly visitor arrivals
Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12
Arrivals Northeast Asia Republic of Korea 42127 39332 24971 25865 31975 31114 35337 45132 26677 27391 30381 38505 46176 45441 33965 28119 31292 29792 36030 Mainland China 1220534 1204301 1254117 1270753 1326627 1198754 1460473 1571015 1246256 1466545 1460992 1482380 1494877 1285266 1447564 1391119 1271540 1220846 1456351 Hong Kong 529621 657355 592018 709053 612851 620004 719681 754636 582025 558687 589082 657910 638032 520144 562037 654803 540435 558878 639580 Taiwan 92123 86293 97136 110410 102664 111684 126233 116152 101047 95922 89761 85737 85546 83357 80911 85718 78834 87025 112263 Japan 36155 32081 34135 21443 28628 27051 29255 38853 35623 32595 39713 40491 31669 40129 39475 26591 33655 34614 35132 Other NE Asia 600 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 500 Northeast Asia 1921160 2019862 2002877 2138024 2103245 1989107 2371479 2526288 1992128 2181640 2210429 2305523 2296800 1974837 2164452 2186850 1956256 1931655 2279856 Southeast Asia 87312 89231 119715 120129 113894 114655 103137 102898 107916 112381 123425 161250 88817 96751 113984 114631 110060 104529 94696 South Asia 9555 7972 9830 13607 22880 25350 15454 11532 12650 14102 12991 13737 12183 8096 8951 11514 22286 19028 13677 Americas 23685 19969 25994 27875 25350 24947 27732 24341 22568 29408 30781 27958 25047 20853 25871 29460 26783 23719 25648 Europe 18837 17426 21004 24042 18904 16452 20651 23120 18669 24386 26701 21556 21575 18926 22970 24786 19515 16492 19085 Australasia 13656 8184 9670 12541 9364 9151 10164 8151 10568 12327 11179 13023 15185 9386 11237 12173 9417 9061 9209 Other 1859 1605 1775 2231 1914 1814 2250 1959 2128 2399 2259 2671 2033 2128 2238 2742 2225 2212 2093 Total 2076064 2164249 2190865 2338449 2295551 2181476 2550867 2698289 2166627 2376643 2417765 2545718 2461640 2130977 2349703 2382156 2146542 2106696 2444264 Growth (Y-o-Y) Northeast Asia Republic of Korea 39% 42% -1% 2% 26% 46% 24% 25% -9% 25% 13% 14% 10% 16% 36% 9% -2% -4% 2% China visitors 8% 5% 19% 21% 17% 22% 28% 24% 39% 30% 33% 23% 22% 7% 15% 9% -4% 2% 0% Hong Kong -3% 7% 4% 2% 4% 9% 7% 0% -3% -11% 5% -1% 20% -21% -5% -8% -12% -10% -11% Taiwan -20% -14% -15% -1% -1% 4% 4% 0% -1% -3% -7% -19% -7% -3% -17% -22% -23% -22% -11% Japan 1% 13% -18% -19% -22% -16% -11% 4% -12% 10% 11% 12% -12% 25% 16% 24% 18% 28% 20% Other NE Asia 20% 0% 0% 0% 0% 0% 0% 0% 0% -5% -9% -17% -17% 0% 0% 0% 0% 0% 0% Northeast Asia 3% 5% 11% 12% 11% 16% 19% 14% 20% 15% 22% 13% 20% -2% 8% 2% -7% -3% -4% Southeast Asia Philippines -11% 10% -5% -5% -7% -1% 5% 9% 38% 31% 22% 31% 30% 12% 8% 20% 13% 3% 0% Indonesia -17% 10% -10% 18% 10% 31% 13% 122% -31% -1% -7% 5% 8% 7% 10% -12% 2% -11% -9% Malaysia -31% 5% -8% -11% -11% 2% 16% 18% -12% -2% 2% -2% 3% 6% -8% -7% -7% -13% -12% Singapore -21% 11% 9% 9% -8% 9% 7% 0% 36% 10% 22% 20% -11% -3% -23% -24% -25% -34% -31% Thailand -22% 0% -11% -4% 2% 13% 3% 10% -6% -4% -18% -30% -27% 15% -6% -7% -6% 26% 11% Vietnam -6% 43% 1% Other -16% 9% -19% -5% -11% -6% 11% 0% 22% 16% 11% 29% 25% 19% 12% 7% 22% 27% -6% Southeast Asia -24% 0% -11% -6% -9% 0% 10% 26% -1% 7% 7% 5% 2% 8% -5% -5% -3% -9% -8% South Asia -6% 21% -4% 8% -11% 1% 20% 2% 4% -3% -7% 0% 28% 2% -9% -15% -3% -25% -11% Americas 2% 2% 5% 6% 0% 9% 1% 10% 2% -1% 10% 8% 6% 4% 0% 6% 6% -5% -8% Europe -5% 2% 5% 15% -3% 7% 1% 5% -1% -3% 5% 7% 15% 9% 9% 3% 3% 0% -8% Australasia -23% -13% -15% 13% 8% 9% 9% 11% 8% 5% 9% 5% 11% 15% 16% -3% 1% -1% -9% Other -2% 4% 6% 9% -6% -3% 26% 8% 21% 8% 10% 24% 9% 33% 26% 23% 16% 22% -7% Total 1% 5% 9% 11% 9% 15% 18% 14% 18% 14% 20% 12% 19% -2% 7% 2% -6% -3% -4%
Source: Macau DSEC, HSBC
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Macau visitation and GGR Figure 88: Macau GGR growth versus total visitor growth
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
100%
Total v isitor grow th (LHS) Macau GGR (y oy ) (RHS)
Source: Macau DSEC, HSBC
Figure 89: Macau VIP and Mass GGR growth versus total visitor growth
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-30%
-15%
0%
15%
30%
45%
60%
75%
90%
Total v isitor grow th (RHS) VIP GGR (y oy ) (LHS) Mass GGR (y oy ) (LHS)
Source: Macau DSEC, HSBC
Figure 90: Macau VIP and Mass GGR growth versus China visitor growth
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
China v isitors (yoy ) (LHS) VIP GGR (y oy ) (RHS) Mass GGR (yoy ) (RHS)
Source: Macau DSEC, HSBC
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Figure 91: Macau GGR growth versus same-day visitor growth
-30%
-20%
-10%
0%
10%
20%
30%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Sameday v isitors (y oy ) (LHS) VIP GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 92: Macau GGR growth versus overnight visitor growth
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
140%
Ov ernight v isitors (y oy ) (LHS) VIP GGR (y oy ) (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 93: Macau GGR growth versus growth in visitors on package tours
-50%
0%
50%
100%
Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12
-40%
-20%
0%
20%
40%
60%
80%
China Non-package (y oy ) (RHS) Macau GGR (y oy ) (LHS)
Source: CEIC, Macau DICJ, HSBC
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Figure 94: Macau GGR growth versus visitor growth by Chinese province: All visitors
-20%
0%
20%
40%
60%
80%
Jul-11 Sep-11 Nov -11 Jan-12 Mar-12 M ay -12 Jul-12-20%
0%
20%
40%
60%
80%
Macau GGR (y oy ) (LHS) Region 1 (RHS) Region 2 (RHS) Region 3 (RHS) Region 4 (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 95: Macau GGR growth versus visitor growth by Chinese province: Individual visitor scheme
-30%
-15%
0%
15%
30%
45%
60%
Jul-11 Sep-11 Nov -11 Jan-12 Mar-12 M ay -12 Jul-12
-30%
-15%
0%
15%
30%
45%
60%
Macau GGR (y oy ) (LHS) Region 1 (RHS) Region 2 (RHS) Region 3 (RHS) Region 4 (RHS)
Source: CEIC, Macau DICJ, HSBC
Figure 96: Macau GGR growth versus visitor growth by Chinese province: Non- individual visitor scheme
-25%
0%
25%
50%
75%
Jul-11 Sep-11 Nov -11 Jan-12 Mar-12 May -12 Jul-12
-25%
0%
25%
50%
75%
Macau GGR (y oy ) (LHS) Region 1 (RHS) Region 2 (RHS) Region 3 (RHS) Region 4 (RHS)
Source: CEIC, Macau DICJ, HSBC
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It’s all about Cotai Over the next eight years, we forecast seven new
resorts and two resort expansions will be
completed on Cotai, costing a total of USD21bn.
A further two projects are also possible (Galaxy
Macau Phase IV, and sites 7 and 8) that could cost
a further USD6.7bn.
We view this new wave of resort development as
critical to Macau’s growth and success as a tourist
destination. The new resorts should enable a
broadening in market appeal, attract new
customers while increasing repeat visitation.
Importantly, the new resorts will utilise 80% of the
undeveloped land on Cotai, thereby transforming
Cotai from a construction zone to a concentrated
precinct of entertainment. New resorts are also
critical for maintaining Macau’s long-term
competitive position within Asia as new markets
open and others undertake expansion.
We forecast the average new resort will achieve
an EBITDA ROA of 37% in the third year of
operation, which is slightly lower than the 39%
achieved by the major resorts in operation.
We also forecast the new resort development
will transform the face of Macau, making Cotai
the dominant driver of the industry’s GGR
and EBITDA.
New resort development
100% of new resort development is on Cotai
New resorts expected to take market share from existing properties
New resorts’ third-year EBITDA ROA to average 37%
Figure 97: New resort development and Macau GGR (USDm)
0
5000
10000
15000
20000
25000
30000
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-20%
0%
20%
40%
60%
80%
100%
120%
Peninsula EBITDA Cotai EBITDA
Peninsula EBITDA grow th (RHS) Cotai EBITDA grow th (RHS)
Galaxy M acau
PIIStudio City
SandsCotai
CentralGalaxy M acau
PI
Sands Site 3Wynn Cot ai
M GM Cotai
SJM Cotai
Galaxy M acau PIII
Source: Macau DICJ, HSBC estimates
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Figure 98: Macau Peninsula versus Macau Cotai total GGR (USDbn) and growth
0
20
40
60
80
100
120
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-20%
-10%
0%10%
20%
30%
40%50%
60%
70%
Peninsula Total GGR Cotai Total GGR Peninsula Total GGR grow th (RHS) Cotai Total GGR grow th (RHS)
Source: Macau DICJ, HSBC estimates
Figure 99: Macau Peninsula versus Macau Cotai VIP GGR (USDbn) and growth
0
10
20
30
40
50
60
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-20%
0%
20%
40%
60%
80%
Peninsula VIP GGR Cotai VIP GGR
Peninsula VIP GGR grow th (RHS) Cotai VIP GGR grow th (RHS)
Source: Macau DICJ, HSBC
Figure 100: Macau Peninsula versus Macau Cotai Mass GGR (USDm) and growth
0
10
20
30
40
50
60
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-10%
0%
10%
20%
30%
40%
50%
60%
Peninsula Mass GGR Cotai Mass GGR Peninsula Mass GGR grow th (RHS) Cotai Mass GGR grow th (RHS)
Source: Macau DICJ, HSBC estimates
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New resort investment We believe all six Macau concessionaires will be
developing new resorts on Cotai within 36 months.
These seven new resorts (and two expansions)
should be completed before the end of 2020 and
should cost a combined USD21bn, which is 16%
higher than the USD18bn invested between 2002
and 2012 (see Figure 101 and 103). However, our
forecast does not include major projects, such as
sites 7 and 8, and Galaxy Macau Phase IV, which
together we believe could cost a further
USD6.8bn.
Galaxy Entertainment
We believe Galaxy will have two new projects
completed by the end of 2020, all of these will be
located on Cotai on the existing land bank owned
by the company and gazetted for casino gaming.
Galaxy Macau Phase II
This project commenced construction in March
2012 and is scheduled to open in 3Q15. The
podium structure is six stories high and
technically could be opened prior to the
completion of the hotel tower.
Galaxy Macau Phase III
This project should commence construction in
2015 and open in 2018. We assume this project
will be of similar size to the existing Galaxy
Macau resort.
Galaxy Macau Phase IV
This project could commence construction after
the completion of Galaxy Macau Phase III,
although we have assumed it does not open before
2020. This is the final piece on the Galaxy Cotai
land bank and on completion will bring the total
developed GFA to 18-21m sqft.
Melco Crown Entertainment
Studio City Phase I and II
The Studio City Phase I project broke ground in
2H12 and is scheduled to open in 2Q15, costing
USD2bn (including foundations).
We expect the Studio City Phase II will
commence construction in 2015, open in 2018 and
cost USD700m.
City of Dreams Phase II
We expect the City of Dreams Phase II will
commence construction in 2013, open in 2016 and
cost USD700m.
Figure 101: Macau casino resort development expenditure (USDm)
0
1000
2000
3000
4000
5000
6000
2002 2004 2006 2008 2010 2012e 2014e 2016e 2018e 2020e
SJM SCL Galax y WM L MCE MGM C
USD18bn USD21bn
Galax y Macau
Phase IV?
Sites 7&8?
Source: HSBC estimates
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MGM China (MGMC)
MGM Cotai
We expect the MGM Cotai project will break
ground in 2013 and open in 2017, costing
USD2.7bn.
Sands China Ltd (SCL)
Sands China Site 3
We expect the Site 3 project by Sands China will
break ground in 1H13 and open in 1H16, costing
USD3bn.
The Venetian renovation
The Venetian is currently undergoing substantial
renovations, particularly in the VIP Paiza areas,
which started in May 2012, and are scheduled to
be completed in January 2013.
Sands Cotai Central expansion
We believe the resort will be expanded through
the inclusion of the St Regis Tower on site 5. This
expansion will likely include 600 hotel rooms.
Construction could commence in 2014 and open
in 2017. We also believe this resort can be
expanded through the use of the land currently
slated as green space at the southernmost portion
of the site situated between sites 6 and 7.
SJM Holdings (SJM)
Cotai Phase 1
We expect the Cotai Phase I project will break
ground in late 2013 and open in 2017, costing
USD2.6bn.
Lisboa Cotai (Phase II)
We expect SJM to bid for and likely secure
parcels 7 and 8 previously held by SCL.
At this time we have not assumed this project will
be completed before 2020.
Wynn Macau
Wynn Cotai
The Wynn Cotai project commenced development
in 2H12 and we believe the property will open in
1H16, costing USD4bn.
We believe the project will be developed in a
single phase and may not include an Encore
component, as has been the case in Steve Wynn’s
last two projects.
Figure 102: Employment in Macau casino resorts
0
20000
40000
60000
80000
100000
120000
140000
2002 2004 2006 2008 2010 2012e 2014e 2016e 2018e 2020e
SJM SCL Galax y WML MCE MGMC
Sands Cotai Central
New resorts
Pre Sands Cotai Central
55,000
+9,000
+50,000
Source: HSBC estimates
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c Figure 103: Macau completed and pending resort developments
Date Cost psf Total cost 2013 EBITDA
ROA _________________ Devices __________________ Hotel __________ Employees____________
Opened Site area GFA Plot ratio (USD) (USDm) (USDm) (%) VIP tables Mass tables Total Slots Rooms Casino Other Total
Completed Sands Macau Apr-04 479,160 1,376,390 2.9x 363 500 333 67% 77 340 417 1177 285 2500 2500 5000 Wynn Macau Phase I, II Sep-06 437,513 1,987,931 4.5x 550 1,094 199 234 433 1020 600 2500 2500 5000 Encore Apr-10 256,952 1,177,302 4.6x 488 575 61 0 61 95 414 500 500 1000 Total 694,465 3,165,232 4.6x 527 1,669 1332 80% 260 234 494 1115 1014 3000 3000 6000 StarWorld Oct-06 73,883 1,022,571 13.8x 421 430 431 100% 100 180 280 550 505 2000 2000 4000 Grand Lisboa Feb-07 125,141 1,457,895 11.7x 554 808 607 75% 127 241 368 785 430 2250 2250 4500 Altira May-07 56,295 1,022,600 18.2x 512 524 175 33% 160 40 200 200 216 1150 1150 2300 Venetian Aug-07 3,136,320 10,400,000 3.3x 231 2,500 1063 43% 150 450 600 2181 2820 4000 4000 8000 MGM Macau Dec-07 464,645 2,215,490 4.8x 564 1,250 804 64% 200 220 420 1200 1174 3000 3000 6000 Plaza Aug-08 784,080 3,000,000 3.8x 367 1,100 416 38% 30 70 100 200 360 1250 1250 2500 City of Dreams Jun-09 1,219,680 5,705,091 4.7x 421 2,400 938 39% 190 235 425 1500 1400 3600 3600 7200 Oceanus Dec-09 86,250 345,000 4.0x 484 167 104 62% 6 188 194 1160 0 1600 400 2000 Galaxy Macau May-11 1,400,000 5,500,000 4.3x 382 2,100 994 47% 120 400 520 1000 2200 4000 4000 8000 Sands C/C Apr-12 1,616,027 13,300,000 8.2x 376 5,000 684 14% 140 400 540 2000 6000 3600 5400 9000 Total/average 10,135,948 48,510,269 4.8x 380 18,448 7,882 43% 1,560 2,998 4,558 13,068 16,404 31,950 32,550 64,500 Pending Studio City Year 3 Phase I 3Q15 1,200,000 6,088,062 5.1x 312 1,900 150 250 400 1000 2000 2400 3000 5400 Phase II 4Q18 300,000 1,522,015 5.1x 460 700 0 1000 1000 0 1500 1500 Total 1,500,000 7,610,077 5.1x 342 2,600 905 35% 150 250 400 2000 3000 2400 4500 6900 City of Dreams Phase II 1Q16 100,000 1,500,000 15.0x 467 700 0 0 0 0 850 0 1275 1275 Galaxy Macau Phase II 3Q15 1,099,560 5,263,900 4.8x 399 2,100 603 29% 100 300 400 1000 1300 2400 4000 6400 Phase III 4Q18 1,099,560 5,263,900 4.8x 479 2,520 1144 45% 100 300 400 1000 3000 2400 4500 6900 Phase IV >2020 1,099,560 5,263,900 4.8x 574 3,024 0 0% 100 300 400 1000 3000 2400 4500 6900 Total 3,298,680 15,791,700 4.8x 484 7,644 1747 23% 300 900 1200 3000 7300 7200 13000 20200 Sands Site 3 1Q16 650,990 3,580,444 5.5x 838 3,000 703 23% 0 0 0 2000 3000 400 4200 4600 Wynn Cotai Phase I&II 3Q16 2,265,086 6,400,000 2.8x 625 4,000 1590 40% 200 200 400 1500 2000 2400 5600 8000 MGM Cotai 2Q17 775,368 6,358,018 8.2x 420 2,670 1137 43% 150 250 400 2000 3000 2400 5100 7500 SJM Cotai Phase I 2Q17 794,979 6,518,825 8.2x 400 2,608 958 37% 50 100 150 1000 1500 900 2550 3450 Phase II >2020 1,186,182 8,303,272 7.0x 440 3,800 0 0% 150 250 400 1000 1500 2400 4000 6400 Total 1,981,160 14,822,097 7.5x 6,408 958 15% 200 350 550 2000 3000 3300 6550 9850 Total/average 10,571,285 56,062,336 5.3x 482 27,022 7,040 26% 1000 1950 2950 12500 22150 18100 40225 58325
Source: Company data, HSBC estimates
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cNew supply and GGR Figure 104: Macau gross gaming revenue split between existing and new resorts (USDm)
2003a 2004a 2005a 2006a 2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
GGR Mass Existing resorts 790 1000 2088 2263 2815 4374 4699 6530 8558 11267 14635 17854 21129 25049 31170 36726 43965 50999 New resorts 409 153 598 192 454 420 653 2178 1503 1175 0 Total 790 1409 2088 2416 3413 4374 4891 6530 9012 11687 14635 17854 21782 27228 32673 37901 43965 50999 VIP Existing resorts 2692 3252 3503 4223 5817 9222 9464 17013 22902 25074 27696 30465 32339 34155 39320 41590 47281 51063 New resorts 362 237 1149 566 1569 721 1173 3378 1216 2189 0 Total 2692 3615 3503 4459 6967 9222 10030 17013 24472 25795 27696 30465 33512 37533 40536 43779 47281 51063 Total Existing resorts 3481 4252 5591 6486 8632 13596 14163 23543 31460 36341 42330 48319 53467 59204 70490 78315 91246 102063 New resorts 0 771 0 389 1747 0 758 0 2024 1141 0 0 1826 5556 2719 3364 0 0 Total 3481 5023 5591 6875 10380 13596 14921 23543 33484 37482 42330 48319 55294 64761 73209 81679 91246 102063 Growth Mass Existing resorts 27% 48% 8% 17% 28% 7% 34% 31% 25% 25% 22% 18% 15% 14% 12% 16% 16% New resorts 52% 7% 25% 4% 0% 7% 5% 0% 0% 4% 10% 6% 4% 0% 0% Total 78% 48% 16% 41% 28% 12% 34% 38% 30% 25% 22% 22% 25% 20% 16% 16% 16% VIP Existing resorts 21% -3% 21% 30% 32% 3% 70% 35% 2% 7% 10% 6% 2% 5% 3% 8% 8% New resorts 13% 7% 26% 6% 0% 9% 3% 0% 0% 4% 10% 3% 5% 0% 0% Total 34% -3% 27% 56% 32% 9% 70% 44% 5% 7% 10% 10% 12% 8% 8% 8% 8% Total Existing resorts 22% 11% 16% 26% 31% 4% 58% 34% 9% 13% 14% 11% 7% 9% 7% 12% 12% New resorts 22% 7% 25% 6% 0% 9% 3% 0% 0% 4% 10% 4% 5% 0% 0% Total 44% 11% 23% 51% 31% 10% 58% 42% 12% 13% 14% 14% 17% 13% 12% 12% 12%
Source: Company data, HSBC estimates
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c Figure 105: Macau new resort development by gaming tables
_________________ Total tables __________________ _____________Net new tables added______________ ___________ Net new tables % existing ____________ Properties added Year Quarter VIP Mass Total VIP Mass Total VIP Mass Total
Galaxy Macau 2011 May-11 1943 3486 5429 143 495 638 8% 17% 13% SCC 2012 Apr-12 2060 3712 5772 117 226 343 6% 6% 6% 2013e 2075 3712 5787 15 0 15 1% 0% 0% 2014e 2075 3712 5787 0 0 0 0% 0% 0% GM PII, Studio City 2015e 3Q15 2325 4202 6527 250 490 740 12% 13% 13% Site 3, Wynn Cotai 2016e 1Q-3Q16 2377 4318 6695 52 116 168 2% 3% 3% SJM Cotai PI, MGM Cotai 2017e 2Q17 2677 4818 7495 300 500 800 13% 12% 12% GM PIII 2018e 4Q18 2747 5068 7815 70 250 320 3% 5% 4% 2019e 2747 5068 7815 0 0 0 0% 0% 0% GM PIV, SJM Cotai PII >2020e 2747 5068 7815 0 0 0 0% 0% 0% Total 947 2077 3024
Source: HSBC estimates
Figure 106: Number of gaming tables in Macau casinos 2011-20e Figure 107: Number of gaming tables by concessionaire 2020e
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Forecast Gov ernment guided
0
200
400
600
800
1000
1200
1400
1600
1800
MGM Wy nn Melco Sands Galax y
Mass VIP
Source: Macau DICJ, HSBC estimates Source: HSBC estimates
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cExisting and new resort ROA Figure 108: Macau existing and new casino resort by EBITDA (USDm) and ROA
Open date 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e Open date 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA EBITDA Sands Macau 2Q04 458 374 214 243 318 351 316 333 302 Galaxy Macau PII 3Q15 204 413 603 866 983 1350 Wynn Macau 3Q06 61 364 484 502 893 1196 1190 1332 1456 Studio City 3Q15 316 432 666 905 1075 1296 StarWorld 4Q06 0 143 82 126 262 380 431 463 440 Sands Site 3 1Q16 189 569 703 863 1051 Grand Lisboa 1Q07 0 136 183 213 329 483 607 703 854 Wynn Cotai 3Q16 409 1059 1590 1911 2475 Altira 2Q07 0 0 163 14 134 246 175 185 198 SJM Cotai PI 2Q17 508 958 1126 1396 Venetian 3Q07 0 144 497 555 810 1024 1019 1063 1274 MGM Cotai 2Q17 385 603 1137 1502 MGM Macau 4Q07 0 12 121 152 364 649 728 804 946 Galaxy Macau PIII 4Q18 306 766 1144 Plaza 3Q08 0 0 7 40 114 218 312 416 506 SJM Cotai PII >2020 City of Dreams 2Q09 57 326 594 792 938 1111 Galaxy Macau PIV >2020 Galaxy Macau 2Q11 331 754 994 1197 Total 520 1442 3790 5932 7861 10214 Sands C/C 2Q12 207 684 1283 Total 519 1174 1752 1901 3550 5470 6533 7916 9567 ROA ROA Sands Macau 2Q04 121% 75% 43% 49% 64% 70% 63% 67% 60% Galaxy Macau PII 3Q15 10% 20% 29% 41% 47% 64% Wynn Macau 3Q06 7% 40% 44% 46% 53% 72% 71% 80% 87% Studio City 3Q15 17% 23% 35% 35% 41% 50% StarWorld 4Q06 0% 33% 19% 29% 61% 88% 100% 108% 102% Sands Site 3 1Q16 6% 19% 23% 29% 35% Grand Lisboa 1Q07 17% 23% 26% 41% 60% 75% 87% 106% Wynn Cotai 3Q16 10% 26% 40% 48% 62% Altira 2Q07 0% 31% 3% 25% 47% 33% 35% 38% SJM Cotai PI 2Q17 19% 37% 43% 54% Venetian 3Q07 6% 20% 22% 32% 41% 41% 43% 51% MGM Cotai 2Q17 14% 23% 43% 56% MGM Macau 4Q07 1% 10% 12% 29% 52% 58% 64% 76% Galaxy Macau PIII 4Q18 12% 30% 45% Plaza 3Q08 1% 4% 10% 20% 28% 38% 46% SJM Cotai PII >2020 NA NA NA City of Dreams 2Q09 2% 14% 25% 33% 39% 46% Galaxy Macau PIV >2020 NA Galaxy Macau 2Q11 16% 36% 47% 57% Average 13% 11% 23% 30% 40% 52% Sands C/C 2Q12 4% 14% 26% Average 30% 17% 21% 18% 32% 41% 36% 43% 52%
Source: HSBC estimates
Figure 109: Casino resort EBITDA (USDm) and ROA 2012e Figure 110: Casino resort EBITDA (USDm) and ROA 2020e
0
200
400
600
800
1000
1200
1400
Altira Sands
C/C
Plaza Sands
M acau
StarWorld Grand
Lisboa
MGM
Macau
Galax y
Macau
City of
Dream s
Venetian Wy nn
M acau
0%
20%
40%
60%
80%
100%
120%
EBITDA 2012e ROA (RHS)
0
500
1000
1500
2000
2500
3000
Sands
Site 3
Galax y
Macau PII
MGM
Cotai
SJM Cotai
PI
Studio
City
Grand
Lisboa
City of
Dreams
Galax y
Macau
Venetian Sands
C/C
Wy nn
Cotai
0%
20%40%
60%80%
100%120%140%160%
180%
EBITDA 2020e ROA (RHS)
Source: HSBC estimates Source: HSBC estimates
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ab
c
Figure 111: Cotai land use developed (red) and undeveloped (pink) as at end-2012e
Theme Park
Taipa
Golf Course(Caesars)
Venetia n
GreenSp ace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Pl aza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
WynnCotai
Galaxy Macau
II
III IV
Mari na
Macau Jockey Club
I
SportsDome
Currently under development Currently under development
Theme Park
Taipa
Golf Course(Caesars)
Venetia n
GreenSp ace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Pl aza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
WynnCotai
Galaxy Macau
II
III IV
Mari na
Macau Jockey Club
I
SportsDome
Theme Park
Taipa
Golf Course(Caesars)
Venetia n
GreenSp ace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Pl aza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
WynnCotai
Galaxy Macau
II
III IV
Mari na
Macau Jockey Club
I
SportsDome
Currently under development Currently under development
Source: HSBC estimates
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Figure 112: Cotai land use developed (red) and undeveloped (pink) as at end-2020e
Theme Park
Taipa
Golf Course(Caesars)
Venetian
GreenSpace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Plaza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
W ynn CotaiGalaxy
Macau
I
II
III
Macau Jockey Club
SportsDome
Mari na
IV
Likely to be under development
Theme Park
Taipa
Golf Course(Caesars)
Venetian
GreenSpace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Plaza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
W ynn CotaiGalaxy
Macau
I
II
III
Macau Jockey Club
SportsDome
Mari na
IV
Theme Park
Taipa
Golf Course(Caesars)
Venetian
GreenSpace
Coloane
Power Station
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Reservoir
China Sea
Plaza
Si te 3
Studio City
City of Dreams
CotaiCentral
Sites 7&8
MGM
Shun Tak
SJM
W ynn CotaiGalaxy
Macau
I
II
III
Macau Jockey Club
SportsDome
Mari na
IV
Likely to be under development
Source: HSBC estimates
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Figure 113: Location of Macau casino resorts
3
1. Lisboa
2. Jai Alai3. Kam Pek
4. Macau Palace
5. Casino Jimei
6. Lan Kwai Fong
7. Diamond
8. Casa Real
9. Marina
10. Greek Mythology
11. Grandview
12 Taipa
13. Pharaoh's
14. Golden Dragon
15. Fortuna
16. Grand Emperor
17. Babylon
18. Grand Lisboa
19. Le Arc
20. Ponte 16
21. Oceanus
22. Cotai Project (PD)
SJM Sands China
1. Waldo
2. RIO3. President
4. Grand Waldo
5. StarWorld
6. Galaxy Macau
Galaxy Entertainment
Wynn Macau
1. Wynn Macau2. Wynn Cotai (UD)
Melco Crown Entertainment
1. Altira Macau
2. City of Dreams 3. Taipa Square
4. Studio City (UD)
MGM China
1. MGM Macau 2. MGM Cotai (PD)
UD = Under development
PD= Pre Development/Planning
Theme Park
Taipa
2
Go lf Course(Harrah’s)
Go Cart
SportsDome
3
4
Sites “14,15,16”
GreenSpace
Coloane
Power Station
4
Pac On Terminal
Friendship Bridge
Macau-Taipa
Br idge
Sai Wan (Van) Bridge
Nam Van Lake
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Zhuh
aiPR
C
Zhuhai PRC Proposed Zhuhai-HK-Macau Bridge
Reservoir
Reserv oir
Proposed Cross Ha rbour Tunnel
3
Intercontinental (PD)5.
Holiday Inn/ConradSheraton/St Regis
4.Four Seasons 3.
Venetian Macau 2.
Sands Macau1.
1618
20
10
2
3
1
1
12
11
1
3
2
5
1
715
19
13
96
24 2
3
Primary CasinoActivity Cluster
Primary CasinoActivity Cluster
SecondaryCasinoActivity Cluster
SecondaryCasinoActivity ClusterB
A
C
D
5
2141
1
17
Ferry Terminal86
7
8 Shun
Tak
2
22Sports
5
China Sea
B7
Galaxy Macau II (UD)7.
Galaxy Macau III (PD)8.
8
3
1. Lisboa
2. Jai Alai3. Kam Pek
4. Macau Palace
5. Casino Jimei
6. Lan Kwai Fong
7. Diamond
8. Casa Real
9. Marina
10. Greek Mythology
11. Grandview
12 Taipa
13. Pharaoh's
14. Golden Dragon
15. Fortuna
16. Grand Emperor
17. Babylon
18. Grand Lisboa
19. Le Arc
20. Ponte 16
21. Oceanus
22. Cotai Project (PD)
SJM Sands China
1. Waldo
2. RIO3. President
4. Grand Waldo
5. StarWorld
6. Galaxy Macau
Galaxy Entertainment
Wynn Macau
1. Wynn Macau2. Wynn Cotai (UD)
Melco Crown Entertainment
1. Altira Macau
2. City of Dreams 3. Taipa Square
4. Studio City (UD)
MGM China
1. MGM Macau 2. MGM Cotai (PD)
UD = Under development
PD= Pre Development/Planning
Theme Park
Taipa
2
Go lf Course(Harrah’s)
Go Cart
SportsDome
3
4
Sites “14,15,16”
GreenSpace
Coloane
Power Station
4
Pac On Terminal
Friendship Bridge
Macau-Tai pa
Br idge
Sai Wan (Van) Bridge
Nam Van Lake
Macau Airport
Lotus Bridge
Zhuhai PRC(Hengqin Island)
Zhuh
aiPR
C
Zhuhai PRC Proposed Zhuhai-HK-Macau Bridge
Reservoir
Reserv oir
Proposed Cross Ha rbour Tunnel
3
Intercontinental (PD)5.
Holiday Inn/ConradSheraton/St Regis
4.Four Seasons 3.
Venetian Macau 2.
Sands Macau1.
1618
20
10
2
3
1
1
12
11
1
3
2
5
1
715
19
13
96
24 2
3
Primary CasinoActivity Cluster
Primary CasinoActivity Cluster
SecondaryCasinoActivity Cluster
SecondaryCasinoActivity ClusterB
A
C
D
5
2141
1
17
Ferry Terminal86
7
8 Shun
Tak
2
22Sports
5
China Sea
B7
Galaxy Macau II (UD)7.
Galaxy Macau III (PD)8.
8
Source: HSBC estimates
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Shift to mass gaming We forecast gross gaming revenue (GGR) to grow
12% in 2012 (17% previously) and 13% in 2013
(14% previously). Macau’s growth has slowed
faster than initially expected due to weakness in
China’s economy.
Growth by segment
We expect VIP gaming to grow 5% in 2012
and 7% in 2013 and expect mass gaming to
grow 31% in 2012 and 25% in 2013.
Growth by location
We forecast Cotai’s share of market revenue
will increase to 68% by 2020 from an
estimated 39% in 2012, driven by new resort
development.
Long-term growth
We believe Macau’s GGR will achieve long-
term growth of 11-12%, which is 2% above
HSBC’s forecast for nominal GDP growth.
We forecast mass gaming will grow to 50%
of Macau GGR in 2020 from 27% in 2011;
this change in market mix should drive
margins, earnings and valuations.
Gross gaming revenue outlook
GGR expected to stabilise in 2H12 and grow by 13% in 2013
Mass gaming to reach 50% of market in 2020e
Cotai to reach 68% of market GGR in 2020e from 39% in 2012e
Figure 114: Macau gross gaming revenue (USDm)
0
20
40
60
80
100
120
2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
0%
10%
20%
30%
40%
50%
VIP GGR (LHS) M ass GGR (LHS)Mass GGR grow th (RHS) VIP GGR grow th (RHS)
Source: Macau DICJ, HSBC estimates
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Mass market demand
We believe mass gaming will be driven by a
combination of continued economic growth in
China, an increase in accessibility from the
development of new infrastructure and,
importantly, new resorts.
We forecast USD21-28bn will be invested in new
resort developments over the next eight years,
which will enlarge market room supply by over
100%, enlarge retail by 100%, enhance non-
gaming entertainment extensively, and together
these projects will drive visitation from across the
region and from around the world.
Increase in accessibility
Macau is becoming more accessible to a larger
market. Customer accessibility is being driven by
a combination of relaxation in government
regulations (visas), enhanced infrastructure and
improved flight access.
Visas
In 2002-03, the Chinese government introduced
the Facilitated Individual Travel (FIT) Scheme,
which enabled more people to travel to Macau.
From 28 July 2003, residents of certain mainland
provinces and cities have also been allowed to
visit the two cities of Hong Kong and Macau, as
individual travellers under the Facilitated
Individual Travel Scheme.
At first, the people who primarily benefited from
the scheme were those residents in four cities in
Guangdong Province, namely Zhongshan,
Jiangmen, Foshan and Dongguan.
Later, the scheme’s coverage gradually expanded
to Beijing, Shanghai, the entire Guangdong
Province and dozens of cities in other provinces.
At present, the scheme operates across almost 60
cities with a combined resident population of over
300m people.
On 10 July 2008, the Zhuhai General Station of Exit
and Entry Frontier Inspection of the PRC announced
that residents of Guangdong Province in mainland
China are only allowed to apply for a visa once
every two months, instead of once every month.
In August 2012, the Chinese government
announced that from 1 September 2012 visa
restrictions will be eased for non-residents in the
six cities of Beijing, Tianjin, Shanghai,
Chongqing, Guangzhou and Shenzhen.
Figure 115: Population of Chinese cities under FIT scheme (m)
0
50
100
150
200
250
300
350
Jul-03 Jan-04 Mar-05 Jan-07
Guangdong Municipalities Other
Source: HSBC estimates
Infrastructure
The national rail and road networks in China are
continually being upgraded, which is facilitating
growth in mass visitation to Macau.
Macau’s major immigration points continue to be
upgraded, which is making it easier for visitors to
enter and exit the market.
Flight access
New flights have been established, connecting
Macau with new markets, such as Japan, Korea
and India. The establishment of low-cost carriers
has also driven visitation from markets such as
South East Asia.
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VIP market demand
We believe market demand for VIP gaming will
continue to increase in 2013, driven by the
broadening and reach of junket marketing
programmes as well as access to capital.
We identify nine key factors that together
determine the size and performance of the Macau
VIP junket market (Figure 116). Central to the
performance of any individual casino is the
working relationship between the junket and the
casino and the ability to maximise revenue from
the player.
The player
The player holds the key to total market gross
gaming revenue, although there are many factors
that determine how much the player will
ultimately spend.
In buoyant economic times, there are likely to be
more players willing to visit a market, and they
may stay for longer periods of time or be more
willing to take on credit to play and may be
viewed by lenders as being of higher credit
worthiness.
Importantly, when the players have taken on
credit during buoyant economic times they may
be more able to repay the credit within the agreed
period of time.
Conversely, when the economic outlook is more
negative fewer players may visit a market, they
may spend less, they may be viewed as being of
lower credit worthiness and take longer to repay
their gaming debts.
Figure 116: Key factors that determine the size and performance of Macau VIP
Agency Network
Operational Efficiency
Syndicate Capital
LoanedWorking Capital
VIP Programs
Operational Efficiency
VIP Service
VIP & ResortFacilities
ThePlayer
Junket VIPPerformance
The Junket
The Casino
Agency Network
Operational Efficiency
Syndicate Capital
LoanedWorking Capital
VIP Programs
Operational Efficiency
VIP Service
VIP & ResortFacilities
ThePlayer
Junket VIPPerformance
The JunketAgency Network
Operational Efficiency
Syndicate Capital
LoanedWorking Capital
VIP Programs
Operational Efficiency
VIP Service
VIP & ResortFacilities
ThePlayer
Junket VIPPerformance
The Junket
The Casino
Source: HSBC
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The junket
Junkets are critical to the VIP business in Macau
and constitute over 80% of total VIP market
revenue. We identify three key factors that
determine junket performance.
Agency network
The agency network refers to both the primary
junket, who ultimately settles with the casino as
well as all the sub-agents that may act as feeders
to the primary junket.
The use of sub-agents extends the reach of the
primary junket, enabling greater access to players
and therefore greater potential VIP roll.
In Macau, there are around 200 licensed and
official junket operators; however, these are fed
by around 10,000 sub-agents who operate across
the East Asian region.
Syndicate capital
Syndicate capital refers to both equity and short-
term loans held by all parties within the junket
network that are extended to players.
We estimate total syndicate capital within the
Macau market to be USD3.3bn in 2012, up 179%
since 2008 (Figure 105).
The primary driver of syndicate capital has been
the flow of new capital from private investors into
the junket system coupled with a matching in
short-term credit loans provided by casinos. The
junket syndicates do reinvest a portion of their
profits back into the operations, which also drive
the growth in junket capital.
Operational efficiency
Junket operational efficiency relates to the junket
syndicate’s ability to identify and attract players,
extend credit, recover gaming debts, and then
redeploy the cage capital back to new players.
The frequency of capital turnover determines the
extent of monthly roll and therefore the extent of
incentives the junket receives back from the
casino. The junket must manage its own capital
position (long-term equity holders and short-term
investors) as well as the risk profile of its players
to ensure its liquidity is sustained.
The large Macau junkets are larger, more
sophisticated and arguably better managed now
than 10 years ago. The corporatisation of junkets
has enhanced their operating performance as well
as their access to capital.
Figure 117: Macau average monthly VIP junket cage capital (USDm)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
2008e 2009e 2010e 2011e 2012e 2013e 2014e
Casino loaned WC Junket sy ndicate capital
Junket capital has driv en VIP
Source: HSBC estimates
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Figure 118: Macau monthly Mass GGR (MOPbn)
0
2
4
6
8
10
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
0%
10%
20%
30%
40%
50%
Mass GGR Mass grow th (RHS)
Source: Macau DICJ, HSBC estimates
Figure 119: Macau monthly VIP GGR (MOPbn)
0
5
10
15
20
25
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
-20%
0%
20%
40%
60%
80%
100%
120%
140%
VIP GGR VIP grow th (RHS)
Source: Macau DICJ, HSBC estimates
Figure 120: Macau monthly total GGR (MOPbn)
0
5
10
15
20
25
30
35
Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13
0%
20%
40%
60%
80%
100%
Total GGR Total GGR grow th (RHS)
Source: Macau DICJ, HSBC estimates
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ab
cMacau monthly GGR
Figure 121: Macau monthly gross gaming revenue (USDbn)
_______________VIP (USDbn)_______________ _____________ Mass (USDbn) ______________ ________________ Growth _________________ ___________ Share_____________ Roll Growth Win rate VIP GGR Tables EGMs Mass GGR Total GGR VIP growth Mass growth Total GGR growth VIP Mass Total
Jan-10 36.9 90% 3.31% 1.22 0.44 0.08 0.52 1.74 78% 35% 63% 70% 30% 100% Feb-10 36.6 70% 3.29% 1.21 0.40 0.07 0.47 1.68 92% 31% 70% 72% 28% 100% Mar-10 41.1 83% 2.89% 1.19 0.43 0.08 0.51 1.70 49% 30% 42% 70% 30% 100% Apr-10 40.2 80% 3.18% 1.28 0.42 0.08 0.50 1.77 91% 32% 70% 72% 28% 100% May-10 47.6 88% 3.33% 1.59 0.46 0.08 0.55 2.13 124% 39% 94% 74% 26% 100% Jun-10 38.6 59% 3.12% 1.20 0.42 0.08 0.50 1.71 79% 39% 65% 71% 29% 100% Jul-10 43.2 58% 3.44% 1.49 0.46 0.09 0.55 2.04 87% 37% 70% 73% 27% 100% Aug-10 46.5 46% 3.00% 1.40 0.48 0.10 0.57 1.97 45% 30% 40% 71% 29% 100% Sep-10 42.5 46% 3.25% 1.38 0.44 0.09 0.53 1.91 42% 33% 40% 72% 28% 100% Oct-10 58.9 55% 2.92% 1.72 0.52 0.11 0.64 2.36 57% 33% 50% 73% 27% 100% Nov-10 48.0 48% 3.33% 1.60 0.48 0.09 0.57 2.17 48% 28% 42% 74% 26% 100% Dec-10 51.8 59% 3.37% 1.74 0.52 0.10 0.62 2.36 81% 36% 66% 74% 26% 100% Jan-11 51.3 39% 3.28% 1.68 0.53 0.10 0.64 2.32 38% 23% 33% 72% 28% 100% Feb-11 62.9 72% 2.87% 1.81 0.55 0.12 0.68 2.48 50% 42% 48% 73% 27% 100% Mar-11 63.9 55% 2.85% 1.82 0.57 0.12 0.69 2.51 53% 36% 48% 73% 27% 100% Apr-11 60.2 50% 3.15% 1.90 0.56 0.11 0.67 2.56 49% 34% 45% 74% 26% 100% May-11 68.0 43% 3.33% 2.27 0.64 0.14 0.77 3.04 43% 41% 42% 75% 25% 100% Jun-11 63.7 65% 2.96% 1.89 0.60 0.11 0.71 2.60 57% 42% 52% 73% 27% 100% Jul-11 69.0 60% 3.26% 2.25 0.65 0.12 0.77 3.03 51% 40% 48% 74% 26% 100% Aug-11 73.5 58% 3.12% 2.29 0.68 0.12 0.80 3.10 64% 40% 57% 74% 26% 100% Sep-11 64.1 51% 2.98% 1.91 0.63 0.12 0.75 2.66 38% 41% 39% 72% 28% 100% Oct-11 76.9 30% 3.26% 2.50 0.72 0.13 0.85 3.36 46% 34% 42% 75% 25% 100% Nov-11 62.5 30% 3.35% 2.09 0.67 0.12 0.79 2.88 31% 38% 33% 73% 27% 100% Dec-11 64.7 25% 3.18% 2.06 0.76 0.14 0.89 2.95 18% 45% 25% 70% 30% 100% Jan-12 67.9 32% 3.25% 2.20 0.78 0.15 0.93 3.13 31% 45% 35% 70% 30% 100% Feb-12 70.1 11% 3.10% 2.17 0.72 0.14 0.86 3.04 20% 28% 22% 72% 28% 100% Mar-12 73.1 14% 2.99% 2.19 0.80 0.14 0.94 3.12 20% 36% 24% 70% 30% 100% Apr-12 68.2 13% 3.22% 2.20 0.78 0.15 0.93 3.13 16% 40% 22% 70% 30% 100% May-12 74.2 9% 3.12% 2.32 0.79 0.15 0.94 3.26 2% 22% 7% 71% 29% 100% Jun-12 62.4 -2% 3.23% 2.02 0.77 0.13 0.90 2.92 7% 27% 12% 69% 31% 100% Jul-12 72.9 6% 2.85% 2.08 0.86 0.14 1.00 3.07 -8% 29% 2% 68% 32% 100% Aug-12 79.6 8% 2.85% 2.27 0.86 0.13 1.00 3.27 -1% 25% 5% 69% 31% 100% Sep-12e 66.9 4% 2.85% 1.91 0.83 0.13 0.96 2.87 0% 29% 8% 66% 34% 100% Oct-12e 80.8 5% 2.85% 2.30 0.93 0.15 1.08 3.39 -8% 27% 1% 68% 32% 100% Nov-12e 73.4 18% 2.85% 2.09 0.87 0.13 1.01 3.10 0% 27% 7% 68% 32% 100% Dec-12e 72.2 12% 2.85% 2.06 0.98 0.15 1.14 3.19 0% 27% 8% 64% 36% 100% Jan-13e 77.3 14% 2.85% 2.20 1.00 0.17 1.17 3.37 0% 26% 8% 65% 35% 100% Feb-13e 80.8 15% 2.85% 2.30 0.92 0.16 1.09 3.39 6% 26% 12% 68% 32% 100% Mar-13e 81.3 11% 2.85% 2.32 1.02 0.16 1.18 3.50 6% 26% 12% 66% 34% 100% Apr-13e 81.6 20% 2.85% 2.33 1.00 0.17 1.17 3.50 6% 26% 12% 67% 33% 100% May-13e 86.2 16% 2.85% 2.46 1.02 0.17 1.19 3.64 6% 26% 12% 67% 33% 100% Jun-13e 75.7 21% 2.85% 2.16 0.99 0.14 1.13 3.29 7% 26% 13% 66% 34% 100%
Source: Macau DICJ, HSBC estimates
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c Figure 122: Macau monthly GGR (MOPbn)
______________ VIP (MOPbn)________________ ______________Mass (MOPbn)_______________ ________________ Growth _________________ ___________ Share _____________ Roll Growth Win rate VIP GGR Tables EGMs Mass GGR Total GGR VIP growth Mass growth Total GGR growth VIP Mass Total
Jan-10 295.5 90% 3.31% 9.78 3.49 0.66 4.15 13.94 78% 35% 63% 70% 30% 100% Feb-10 293.2 70% 3.29% 9.65 3.20 0.60 3.80 13.45 92% 31% 70% 72% 28% 100% Mar-10 329.0 83% 2.89% 9.52 3.42 0.63 4.05 13.57 49% 30% 42% 70% 30% 100% Apr-10 321.4 80% 3.18% 10.22 3.34 0.63 3.97 14.19 91% 32% 70% 72% 28% 100% May-10 380.9 88% 3.33% 12.69 3.72 0.66 4.38 17.08 124% 39% 94% 74% 26% 100% Jun-10 308.9 59% 3.12% 9.63 3.34 0.67 4.01 13.64 79% 39% 65% 71% 29% 100% Jul-10 345.5 58% 3.44% 11.89 3.68 0.74 4.42 16.31 87% 37% 70% 73% 27% 100% Aug-10 372.2 46% 3.00% 11.18 3.81 0.79 4.59 15.77 45% 30% 40% 71% 29% 100% Sep-10 340.2 46% 3.25% 11.04 3.55 0.71 4.26 15.30 42% 33% 40% 72% 28% 100% Oct-10 471.5 55% 2.92% 13.76 4.20 0.91 5.10 18.87 57% 33% 50% 73% 27% 100% Nov-10 383.7 48% 3.33% 12.79 3.81 0.76 4.57 17.35 48% 28% 42% 74% 26% 100% Dec-10 414.1 59% 3.37% 13.95 4.12 0.81 4.94 18.88 81% 36% 66% 74% 26% 100% Jan-11 410.2 39% 3.28% 13.46 4.27 0.84 5.11 18.57 38% 23% 33% 72% 28% 100% Feb-11 503.5 72% 2.87% 14.46 4.42 0.98 5.40 19.86 50% 42% 48% 73% 27% 100% Mar-11 511.1 55% 2.85% 14.58 4.57 0.94 5.51 20.09 53% 36% 48% 73% 27% 100% Apr-11 481.7 50% 3.15% 15.18 4.44 0.88 5.33 20.51 49% 34% 45% 74% 26% 100% May-11 544.2 43% 3.33% 18.12 5.10 1.09 6.19 24.31 43% 41% 42% 75% 25% 100% Jun-11 510.0 65% 2.96% 15.11 4.76 0.92 5.68 20.79 57% 42% 52% 73% 27% 100% Jul-11 551.9 60% 3.26% 18.02 5.20 0.99 6.19 24.21 51% 40% 48% 74% 26% 100% Aug-11 588.0 58% 3.12% 18.36 5.45 0.96 6.41 24.77 64% 40% 57% 74% 26% 100% Sep-11 512.6 51% 2.98% 15.25 5.05 0.94 5.99 21.24 38% 41% 39% 72% 28% 100% Oct-11 615.0 30% 3.26% 20.03 5.74 1.08 6.82 26.85 46% 34% 42% 75% 25% 100% Nov-11 499.6 30% 3.35% 16.74 5.38 0.94 6.32 23.06 31% 38% 33% 73% 27% 100% Dec-11 517.5 25% 3.18% 16.46 6.06 1.09 7.15 23.61 18% 45% 25% 70% 30% 100% Jan-12 542.8 32% 3.25% 17.62 6.24 1.18 7.42 25.04 31% 45% 35% 70% 30% 100% Feb-12 560.7 11% 3.10% 17.38 5.77 1.14 6.91 24.29 20% 28% 22% 72% 28% 100% Mar-12 584.9 14% 2.99% 17.49 6.37 1.13 7.50 24.99 20% 36% 24% 70% 30% 100% Apr-12 546.0 13% 3.22% 17.56 6.28 1.16 7.44 25.00 16% 40% 22% 70% 30% 100% May-12 593.7 9% 3.12% 18.54 6.35 1.19 7.54 26.08 2% 22% 7% 71% 29% 100% Jun-12 499.1 -2% 3.23% 16.13 6.19 1.01 7.20 23.33 7% 27% 12% 69% 31% 100% Jul-12 583.2 6% 2.85% 16.62 6.85 1.11 7.96 24.58 -8% 29% 2% 68% 32% 100% Aug-12 636.5 8% 2.85% 18.14 6.92 1.07 7.99 26.13 -1% 25% 5% 69% 31% 100% Sep-12e 535.2 4% 2.85% 15.25 6.66 1.06 7.72 22.97 0% 29% 8% 66% 34% 100% Oct-12e 646.7 5% 2.85% 18.43 7.46 1.20 8.67 27.10 -8% 27% 1% 68% 32% 100% Nov-12e 587.5 18% 2.85% 16.74 6.99 1.05 8.04 24.78 0% 27% 7% 68% 32% 100% Dec-12e 577.5 12% 2.85% 16.46 7.88 1.22 9.10 25.56 0% 27% 8% 64% 36% 100% Jan-13e 618.1 14% 2.85% 17.62 7.99 1.35 9.34 26.95 0% 26% 8% 65% 35% 100% Feb-13e 646.3 15% 2.85% 18.42 7.39 1.30 8.69 27.10 6% 26% 12% 68% 32% 100% Mar-13e 650.5 11% 2.85% 18.54 8.15 1.29 9.44 27.98 6% 26% 12% 66% 34% 100% Apr-13e 653.2 20% 2.85% 18.62 8.04 1.32 9.36 27.98 6% 26% 12% 67% 33% 100% May-13e 689.6 16% 2.85% 19.65 8.13 1.35 9.48 29.13 6% 26% 12% 67% 33% 100% Jun-13e 605.6 21% 2.85% 17.26 7.93 1.15 9.08 26.34 7% 26% 13% 66% 34% 100%
Source: Macau DICJ, HSBC estimates
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cMacau quarterly GGR and market share Figure 123: Macau quarterly GGR by concessionaire (USDm)
1Q11a 2Q11a 3Q11a 4Q11a 2011a 1Q12a 2Q12a 3Q12e 4Q12e 2012e 1Q13e 2Q13e 3Q13e 4Q13e 2013e
Mass GGR Galaxy 125 193 305 383 1005 408 392 456 494 1749 515 513 555 601 2185 Melco 235 267 273 302 1077 351 342 364 397 1454 405 412 430 465 1711 MGM 194 199 192 204 789 228 248 237 258 970 264 269 285 309 1127 Sands 538 536 582 609 2265 644 700 769 842 2955 930 953 1029 1110 4023 SJM 647 698 713 763 2821 808 817 840 916 3381 985 1005 1044 1134 4169 Wynn 264 256 260 275 1055 290 275 293 319 1177 333 339 359 389 1420 Total 2003 2149 2325 2536 9012 2729 2773 2959 3226 11687 3433 3490 3703 4009 14635 VIP GGR Galaxy 680 865 1433 1511 4489 1338 1531 1438 1484 5791 1603 1631 1606 1668 6508 Melco 826 950 1052 963 3790 914 848 800 826 3389 887 902 888 923 3600 MGM 613 695 667 748 2724 709 684 625 645 2663 648 659 649 674 2631 Sands 715 769 668 807 2959 1004 952 1069 1104 4128 1235 1256 1237 1285 5013 SJM 1691 1828 1707 1681 6907 1726 1668 1538 1588 6520 1630 1659 1633 1697 6619 Wynn 788 944 926 944 3603 870 846 781 807 3304 819 833 820 852 3323 Total 5312 6052 6453 6654 24472 6560 6529 6252 6454 25795 6822 6941 6833 7099 27696 Total GGR Galaxy 805 1058 1738 1893 5494 1746 1923 1894 1978 7541 2118 2144 2161 2270 8693 Melco 1060 1217 1325 1265 4867 1265 1190 1164 1223 4842 1292 1314 1318 1388 5312 MGM 807 894 859 953 3513 936 932 862 904 3634 912 928 934 983 3758 Sands 1253 1306 1250 1416 5224 1648 1651 1838 1946 7083 2165 2209 2266 2395 9036 SJM 2338 2526 2420 2444 9728 2534 2485 2378 2504 9901 2616 2664 2677 2831 10788 Wynn 1052 1201 1186 1220 4659 1160 1121 1074 1126 4481 1152 1171 1179 1241 4743 Total 7315 8201 8778 9190 33484 9289 9302 9210 9680 37482 10255 10431 10536 11108 42330
Source: HSBC estimates
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Figure 124: Macau quarterly GGR market share by concessionaire
1Q11a 2Q11a 3Q11a 4Q11a 2011a 1Q12a 2Q12a 3Q12e 4Q12e 2012e 1Q13e 2Q13e 3Q13e 4Q13e 2013e
Mass GGR Galaxy 6% 9% 13% 15% 11% 15% 14% 15% 15% 15% 15% 15% 15% 15% 15% Melco 12% 12% 12% 12% 12% 13% 12% 12% 12% 12% 12% 12% 12% 12% 12% MGM 10% 9% 8% 8% 9% 8% 9% 8% 8% 8% 8% 8% 8% 8% 8% Sands 27% 25% 25% 24% 25% 24% 25% 26% 26% 25% 27% 27% 28% 28% 27% SJM 32% 32% 31% 30% 31% 30% 29% 28% 28% 29% 29% 29% 28% 28% 28% Wynn 13% 12% 11% 11% 12% 11% 10% 10% 10% 10% 10% 10% 10% 10% 10% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% VIP GGR Galaxy 13% 14% 22% 23% 18% 20% 23% 23% 23% 22% 24% 24% 24% 24% 24% Melco 16% 16% 16% 14% 15% 14% 13% 13% 13% 13% 13% 13% 13% 13% 13% MGM 12% 11% 10% 11% 11% 11% 10% 10% 10% 10% 10% 10% 10% 10% 10% Sands 13% 13% 10% 12% 12% 15% 15% 17% 17% 16% 18% 18% 18% 18% 18% SJM 32% 30% 26% 25% 28% 26% 26% 25% 25% 25% 24% 24% 24% 24% 24% Wynn 15% 16% 14% 14% 15% 13% 13% 13% 13% 13% 12% 12% 12% 12% 12% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Total GGR Galaxy 11% 13% 20% 21% 16% 19% 21% 21% 20% 20% 21% 21% 21% 20% 21% Melco 14% 15% 15% 14% 15% 14% 13% 13% 13% 13% 13% 13% 13% 12% 13% MGM 11% 11% 10% 10% 10% 10% 10% 9% 9% 10% 9% 9% 9% 9% 9% Sands 17% 16% 14% 15% 16% 18% 18% 20% 20% 19% 21% 21% 22% 22% 21% SJM 32% 31% 28% 27% 29% 27% 27% 26% 26% 26% 26% 26% 25% 25% 25% Wynn 14% 15% 14% 13% 14% 12% 12% 12% 12% 12% 11% 11% 11% 11% 11% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Source: HSBC estimates
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Consumer & Retail Hotels Restaurants & Leisure 12 September 2012
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Macau annual GGR and market share
Figure 125: Market share of annual Macau GGR: Peninsula-based resorts
0%
5%
10%
15%
20%
25%
2006 2008 2010 2012e 2Q13 4Q13 2014e 2016e 2018e 2020e
Sands Macau Grand Lisboa Wy nn Maacu MGM Macau Starw or ld
The Pensinula based properties w ill steadily lose share to Cotai
Source: HSBC estimates
Figure 126: Market share of annual Macau GGR: existing Cotai-based resorts
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
2006 2008 2010 2012e 2Q13 4Q13 2014e 2016e 2018e 2020e
Venetian & Plaza City of Dreams Galax y M acau Sands Cotai Central
The ex isting major Cotai based properties w ill lose share to new resorts
Source: HSBC estimates
Figure 127: Market share of annual Macau GGR: pending Cotai-based resorts
0%
1%
2%
3%
4%
5%
6%
7%
8%
2006 2008 2010 2012e 2Q13 4Q13 2014e 2016e 2018e 2020e
Galax y M acau PII Wy nn Cotai Studio CitySJM Cotai MGM Cotai Galax y Macau PIII
New Cotai resorts should take substantial share w ithin 3 years of opening
Source: HSBC estimates
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cFigure 128: Macau casino gross gaming revenue (GGR)
2006a 2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
GGR (MOPbn) VIP 35.7 55.8 73.8 79.8 135.6 196.1 206.4 221.6 243.7 268.1 300.3 324.3 350.2 378.2 408.5 Mass Tables 17.3 23.7 29.3 33.0 44.1 60.3 80.0 101.7 124.1 151.4 189.2 227.1 263.4 305.5 354.4 EGMs 2.0 3.6 5.7 6.5 8.6 11.4 13.5 15.4 18.8 22.9 28.6 34.3 39.8 46.2 53.6 Mass 19.3 27.3 35.0 39.5 52.7 71.7 93.5 117.1 142.8 174.3 217.8 261.4 303.2 351.7 408.0 Total 55.0 83.0 108.8 119.4 188.3 267.9 299.9 338.6 386.6 442.3 518.1 585.7 653.4 730.0 816.5 Share VIP 65% 67% 68% 67% 72% 73% 69% 65% 63% 61% 58% 55% 54% 52% 50% Mass Tables 31% 29% 27% 28% 23% 23% 27% 30% 32% 34% 37% 39% 40% 42% 43% EGMs 4% 4% 5% 5% 5% 4% 5% 5% 5% 5% 6% 6% 6% 6% 7% Mass 35% 33% 32% 33% 28% 27% 31% 35% 37% 39% 42% 45% 46% 48% 50% Total 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% Growth VIP 27% 56% 32% 8% 70% 45% 5% 7% 10% 10% 12% 8% 8% 8% 8% Mass Tables 12% 37% 24% 13% 33% 37% 33% 27% 22% 22% 25% 20% 16% 16% 16% EGMs 64% 80% 57% 15% 33% 33% 18% 14% 22% 22% 25% 20% 16% 16% 16% Mass 15% 41% 28% 13% 33% 36% 30% 25% 22% 22% 25% 20% 16% 16% 16% Total 23% 51% 31% 10% 58% 42% 12% 13% 14% 14% 17% 13% 12% 12% 12% USD/MOP ex-rate 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 GGR (USDbn) VIP 4.5 7.0 9.2 10.0 17.0 24.5 25.8 27.7 30.5 33.5 37.5 40.5 43.8 47.3 51.1 Mass Tables 2.2 3.0 3.7 4.1 5.5 7.6 10.0 12.7 15.5 18.9 23.7 28.4 32.9 38.2 44.3 EGMs 0.2 0.4 0.7 0.8 1.1 1.5 1.7 1.9 2.3 2.9 3.6 4.3 5.0 5.8 6.7 Mass 2.4 3.4 4.4 4.9 6.5 9.0 11.7 14.6 17.9 21.8 27.2 32.7 37.9 44.0 51.0 Total 6.9 10.4 13.6 14.9 23.5 33.5 37.5 42.3 48.3 55.3 64.8 73.2 81.7 91.2 102.1
Source: Macau DICJ, HSBC estimates
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Figure 129: VIP GGR share by property by concessionaire
2006a 2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Sands China Venetian 0% 6% 12% 10.6% 7.7% 6.3% 5.2% 5.0% 5.0% 5.0% 4.8% 4.5% 4.1% 3.5% 3.7% Sands Macao 12% 11% 7% 6.6% 4.9% 3.6% 2.7% 2.4% 2.4% 2.0% 2.0% 2.0% 2.0% 2.0% 1.9% Four Seasons 0% 0% 0% 1.7% 2.7% 2.2% 5.3% 5.7% 6.0% 5.7% 5.4% 5.0% 5.0% 5.0% 5.3% Cotai Central 0% 0% 0% 0.0% 0.0% 0.0% 2.8% 5.0% 5.5% 5.5% 5.0% 4.5% 4.1% 3.5% 3.7% Site 3 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 12% 18% 19% 18.8% 15.3% 12.1% 16.0% 18.1% 18.9% 18.2% 17.2% 16.0% 15.1% 14.0% 14.5% Galaxy Galaxy Macau 0% 0% 0% 0.0% 0.0% 6.4% 11.6% 12.5% 12.5% 12.5% 12.0% 8.0% 7.0% 6.0% 6.3% Galaxy Macau Phase II 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 4.5% 5.5% 7.0% 7.0% 7.4% Galaxy Macau Phase III 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 7.0% 7.4% Galaxy Macau Phase IV 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Star World 1% 11% 8% 10.5% 11.2% 10.7% 9.9% 10.0% 9.5% 9.0% 8.5% 6.0% 4.0% 4.0% 3.8% Other 14% 11% 5% 4.2% 2.2% 1.3% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% Total 15% 22% 13% 14.8% 13.4% 18.3% 22.5% 23.5% 23.0% 26.0% 26.0% 20.5% 24.0% 25.0% 25.8% MPEL City of Dreams 0% 0% 0% 5.6% 8.8% 9.2% 8.8% 9.0% 9.0% 8.5% 7.5% 5.5% 5.5% 5.5% 5.8% Altira 0% 5% 19% 9.7% 6.9% 6.3% 4.3% 4.0% 4.0% 4.0% 3.5% 3.0% 3.0% 3.0% 3.0% Studio City 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 5.5% 6.0% 6.0% 6.0% 6.3% Other (Mocha, Taipa Sq) 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Total 0% 5% 19% 15.4% 15.7% 15.5% 13.1% 13.0% 13.0% 16.0% 16.5% 14.5% 14.5% 14.5% 15.1% SJM Grand Lisboa 0% 5% 8% 7.7% 8.8% 9.0% 10.6% 10.0% 10.0% 9.5% 8.5% 8.0% 6.0% 6.0% 6.0% Lisboa Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 6.5% 6.5% 6.5% Lisboa Cotai II 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Other 69% 33% 14% 18.8% 21.7% 19.2% 14.6% 13.9% 14.3% 10.8% 11.8% 13.0% 9.4% 9.5% 7.6% Total 69% 38% 22% 26.5% 30.5% 28.2% 25.3% 23.9% 24.3% 20.3% 20.3% 26.0% 21.9% 22.0% 20.1% MGM China MGM 0% 1% 8% 8.9% 9.0% 11.1% 10.3% 9.5% 9.5% 9.0% 8.0% 7.0% 5.0% 5.0% 4.8% MGM Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.0% 6.0% 6.0% 6.3% Total 0% 1% 8% 8.9% 9.0% 11.1% 10.3% 9.5% 9.5% 9.0% 8.0% 10.0% 11.0% 11.0% 11.1% Wynn Macau Wynn and Encore 4% 17% 18% 15.7% 16.1% 14.7% 12.8% 12.0% 11.3% 10.5% 8.5% 7.0% 7.0% 7.0% 6.7% Wynn Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 6.0% 6.5% 6.5% 6.8% Total 4% 17% 18% 15.7% 16.1% 14.7% 12.8% 12.0% 11.3% 10.5% 12.0% 13.0% 13.5% 13.5% 13.5% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company data, HSBC estimates
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Figure 130: Mass GGR share by property by concessionaire
2006a 2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Sands China Venetian 0% 7% 20% 19.8% 18.2% 15.2% 13.6% 11.5% 11.2% 10.6% 10.1% 9.6% 8.6% 7.8% 8.2% Sands Macao 36% 22% 13% 11.3% 9.3% 7.7% 6.1% 5.5% 4.5% 4.5% 4.2% 4.0% 3.5% 3.0% 2.9% Four Seasons 0% 0% 1% 1.9% 2.2% 2.3% 2.0% 2.1% 2.1% 2.1% 2.0% 1.5% 1.5% 1.0% 1.1% Cotai Central 0% 0% 0% 0.0% 0.0% 0.0% 3.6% 8.4% 11.0% 10.0% 9.0% 8.6% 8.1% 7.0% 7.4% Site 3 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 1.5% 4.0% 4.0% 4.0% 4.0% Total 36% 29% 33% 33.0% 29.6% 25.1% 25.3% 27.5% 28.8% 27.2% 26.8% 27.7% 25.8% 22.8% 23.4% Galaxy Galaxy Macau 0% 0% 0% 0.0% 0.0% 5.0% 9.3% 9.9% 9.9% 9.1% 8.5% 7.0% 6.5% 6.5% 6.8% Galaxy Macau Phase II 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.0% 5.0% 6.0% 6.5% 6.5% 6.8% Galaxy Macau Phase III 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.1% 6.0% 6.3% Galaxy Macau Phase IV 0.0% Star World 1% 6% 3% 3.8% 3.8% 3.8% 3.5% 3.1% 2.5% 2.5% 2.5% 2.5% 2.0% 2.0% 1.9% Other 4% 4% 4% 2.7% 2.1% 2.3% 2.2% 2.0% 2.2% 1.8% 1.5% 1.0% 1.0% 1.0% 1.0% Total 5% 11% 7% 6.6% 6.0% 11.2% 15.0% 14.9% 14.6% 16.4% 17.5% 16.5% 19.1% 22.0% 22.9% Melco Crown City of Dreams 0% 0% 0% 3.9% 8.5% 9.4% 10.3% 9.6% 9.5% 9.5% 9.0% 7.0% 6.0% 6.0% 6.3% Altira 0% 1% 1% 1.0% 0.9% 1.1% 0.9% 0.9% 0.9% 0.9% 0.7% 0.7% 0.7% 0.7% 0.7% Studio City 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 4.5% 6.0% 6.5% 6.5% 6.5% Other (Mocha, Taipa Sq) 0% 2% 2% 2.0% 1.7% 1.5% 1.3% 1.2% 1.2% 1.2% 0.7% 0.5% 0.4% 0.3% 0.2% Total 0% 3% 3% 7.0% 11.1% 12.0% 12.4% 11.7% 11.6% 15.1% 14.9% 14.2% 13.6% 13.5% 13.7% SJM Grand Lisboa 0% 9% 8% 8.3% 8.3% 8.1% 7.2% 7.0% 7.0% 6.5% 6.0% 5.5% 5.5% 5.5% 5.0% Lisboa Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 7.0% 7.0% 7.4% Lisboa Cotai II Other 54% 35% 27% 25.0% 25.0% 23.2% 21.7% 21.5% 20.8% 18.3% 19.2% 10.0% 7.5% 6.5% 4.8% Total 54% 43% 35% 33.3% 33.3% 31.3% 28.9% 28.5% 27.8% 24.8% 25.2% 20.5% 20.0% 19.0% 17.1% MGM China MGM 0% 1% 8% 7.8% 8.3% 8.8% 8.3% 7.7% 7.7% 7.5% 5.0% 4.5% 4.5% 4.5% 4.3% MGM Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.6% 5.0% 6.2% 6.5% Total 0% 1% 8% 7.8% 8.3% 8.8% 8.3% 7.7% 7.7% 7.5% 5.0% 9.1% 9.5% 10.7% 10.8% Wynn Macau Wynn and Encore 5% 14% 14% 12.4% 11.7% 11.7% 10.1% 9.7% 9.5% 9.0% 7.1% 6.0% 5.0% 5.0% 4.8% Wynn Cotai 0% 0% 0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 6.0% 7.0% 7.0% 7.4% Total 5% 14% 14% 12.4% 11.7% 11.7% 10.1% 9.7% 9.5% 9.0% 10.6% 12.0% 12.0% 12.0% 12.1% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company data, HSBC estimates
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c Figure 131: Total GGR share by property by concessionaire
2006a 2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Sands China Venetian 0.0% 6.6% 14.4% 13.6% 10.6% 8.7% 7.8% 7.2% 7.3% 7.2% 7.0% 6.8% 6.2% 5.6% 5.9% Sands Macao 20.4% 14.7% 9.1% 8.1% 6.1% 4.7% 3.8% 3.5% 3.2% 3.0% 2.9% 2.9% 2.7% 2.5% 2.4% Four Seasons 0.0% 0.0% 0.4% 1.7% 2.6% 2.2% 4.3% 4.5% 4.6% 4.3% 4.0% 3.4% 3.4% 3.1% 3.2% Cotai Central 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.0% 6.2% 7.5% 7.3% 6.7% 6.3% 5.9% 5.2% 5.5% Site 3 0.6% 1.8% 1.9% 1.9% 2.0% Total 20.4% 21.3% 23.9% 23.4% 19.3% 15.6% 18.9% 21.3% 22.6% 21.8% 21.2% 21.2% 20.1% 18.2% 19.0% Galaxy Galaxy Macau 0.0% 0.0% 0.0% 0.0% 0.0% 6.0% 10.9% 11.6% 11.5% 11.2% 10.5% 7.6% 6.8% 6.2% 6.6% Galaxy Macau Phase II 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.3% 4.7% 5.7% 6.8% 6.8% 7.1% Galaxy Macau Phase III 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.1% 6.5% 6.8% Galaxy Macau Phase IV 0.0% Star World 0.9% 9.6% 6.4% 8.3% 9.2% 8.8% 7.9% 7.6% 6.9% 6.4% 6.0% 4.4% 3.1% 3.0% 2.9% Other 10.4% 8.7% 4.6% 3.7% 2.2% 1.6% 1.4% 1.3% 1.4% 1.3% 1.2% 1.0% 1.0% 1.0% 1.0% Total 11.3% 18.3% 11.0% 12.1% 11.3% 16.4% 20.1% 20.5% 19.9% 22.2% 22.4% 18.7% 21.7% 23.6% 24.3% Melco Crown City of Dreams 0.0% 0.0% 0.0% 5.1% 8.7% 9.3% 9.3% 9.2% 9.2% 8.9% 8.1% 6.2% 5.7% 5.7% 6.0% Altira 0.0% 3.7% 13.5% 6.9% 5.2% 4.9% 3.3% 2.9% 2.9% 2.8% 2.3% 2.0% 1.9% 1.9% 1.9% Studio City 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 5.1% 6.0% 6.2% 6.2% 6.4% Other (Mocha, Taipa Sq) 0.0% 0.6% 0.5% 0.7% 0.5% 0.4% 0.4% 0.4% 0.4% 0.5% 0.3% 0.2% 0.2% 0.1% 0.1% Total 0.0% 4.3% 14.0% 12.6% 14.4% 14.5% 12.9% 12.5% 12.5% 15.6% 15.8% 14.4% 14.1% 14.0% 14.4% SJM Grand Lisboa 0.0% 5.9% 8.1% 7.9% 8.7% 8.8% 9.6% 9.0% 8.9% 8.3% 7.4% 6.9% 5.8% 5.8% 5.5% Lisboa Cotai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.0% 6.7% 6.7% 6.9% Lisboa Cotai II 0.0% 0.0% 0.0% Other 63.5% 33.8% 18.3% 20.8% 22.6% 20.3% 16.8% 16.5% 16.7% 13.7% 14.9% 11.7% 8.5% 8.1% 6.2% Total 63.5% 39.7% 26.4% 28.7% 31.3% 29.1% 26.4% 25.5% 25.6% 22.1% 22.4% 23.6% 21.0% 20.6% 18.6% MGM China MGM 0.0% 0.6% 8.1% 8.6% 8.8% 10.5% 9.7% 8.9% 8.8% 8.4% 6.7% 5.9% 4.8% 4.8% 4.5% MGM Cotai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.7% 5.5% 6.1% 6.4% Total 0.0% 0.6% 8.1% 8.6% 8.8% 10.5% 9.7% 8.9% 8.8% 8.4% 6.7% 9.6% 10.3% 10.9% 10.9% Wynn Macau Wynn and Encore 4.8% 15.8% 16.7% 14.6% 14.9% 13.9% 12.0% 11.2% 10.6% 9.9% 7.9% 6.6% 6.1% 6.0% 5.7% Wynn Cotai 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 3.5% 6.0% 6.7% 6.7% 7.1% Total 4.8% 15.8% 16.7% 14.6% 14.9% 13.9% 12.0% 11.2% 10.6% 9.9% 11.4% 12.6% 12.8% 12.8% 12.8% Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Source: Company data, HSBC estimates
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Consumer & Retail Hotels Restaurants & Leisure 12 September 2012
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Mass provides leverage We forecast Macau casino EBITDA growth will
bottom in 4Q12 and commence a recovery
throughout 2013, driven by continued strong
growth in mass gaming.
Galaxy is expected to experience the strongest
growth in estimated 2012 EBITDA of 63%
following the full-year operation of Galaxy
Macau resort, which opened in May 2011.
SCL is the most profitable concessionaire in
the mass gaming segment and will, in our
view, achieve the strongest growth in
EBITDA in 2013 and 2014 following the
phased completion of Sands Cotai Central.
We believe the opening of future new casino
resorts will likely cause continued cost
pressure within a tight labour market, and we
forecast general resort costs to increase 8-
12% p.a.
On a long-term basis, we forecast Macau
casino EBITDA will grow at a CAGR of 17%
in 2012-20. We expect EBITDA growth to be
a function of revenue growth (mass gaming in
particular), continued operational efficiency
gains, and increasing profitability of non-
gaming activities.
EBITDA outlook
High-margin mass should drive long-term operational leverage
Casino EBITDA to enjoy an estimated eight-year CAGR of 17%
New resort development should see estimated average Cotai
EBITDA share grow to 79% in 2020 from 42% in 2011
Figure 132: Macau casino concessionaire EBITDA growth vs. China GDP growth (USDm)
58.4%
65.7%
46.9% 47.7%
37.1%
14.5%10.5% 8.5%
15.9%19.9%
26.2% 27.1%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12e 4Q12e 1Q13e 2Q13e 3Q13e 4Q13e
Macau EBITDA grow th (LHS) Macau Total GGR grow th (RHS)
Macau VIP GGR grow th (RHS) Macau mass GGR grow th (RHS)
Source: Company data, HSBC estimates
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Consumer & Retail Hotels Restaurants & Leisure 12 September 2012
abc
Figure 133: Peninsula vs. Cotai EBITDA (USDm) development
0
5,000
10,000
15,000
20,000
25,000
30,000
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
-20%
0%
20%
40%
60%
80%
100%
120%
Peninsula EBITDA Cotai EBITDA
Peninsula EBITDA grow th (RHS) Cotai EBITDA grow th (RHS)
Galaxy M acau
PIIStudio City
SandsCotai
CentralGalaxy M acau
PI
Sands Site 3Wynn Cotai
M GM Cotai
SJM Cotai
Galaxy M acau PIII
Source: HSBC estimates
Figure 134: Concessionaire EBITDA (USDm) from Cotai operations
0
5,000
10,000
15,000
20,000
25,000
2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Sands China Galax y Melco SJM MGM China Wy nn
Source: HSBC estimates
Figure 135: Macau casino EBITDA growth and GGR growth
33%
13%
96%
54%
17%22% 22% 20% 15%
10% 14% 15%22%
0%
20%
40%
60%
80%
100%
120%
2008 2009 2010 2011 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA grow th GGR grow th
Major period of casino resort openings
Source: HSBC estimates
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cConcessionaire EBITDA and growth Figure 136: Macau casino EBITDA by concessionaire (USDm)
1Q11a 2Q11a 3Q11a 4Q11a 1Q12a 2Q12a 3Q12e 4Q12e 1Q13e 2Q13e 3Q13e 4Q13e
EBITDA Galaxy 92 142 230 275 277 329 295 306 356 368 366 383 Melco 138 235 258 250 263 204 256 270 288 266 303 319 MGM 147 174 152 176 178 188 179 184 189 188 210 216 Sands 377 382 390 428 451 429 459 500 576 588 630 678 SJM 216 233 212 226 246 244 228 234 258 288 308 341 Wynn 273 314 296 313 290 302 283 315 307 335 327 362 Total 1243 1480 1538 1668 1703 1695 1700 1809 1975 2033 2145 2300 EBITDA Growth Galaxy 71% 93% 209% 224% 202% 131% 28% 11% 29% 12% 24% 25% Melco 40% 170% 71% 64% 90% -13% -1% 8% 10% 31% 18% 18% MGM 158% 125% 45% 41% 21% 8% 18% 5% 6% 0% 18% 18% Sands 48% 27% 19% 29% 20% 12% 18% 17% 28% 37% 37% 36% SJM 53% 60% 40% 35% 14% 5% 7% 3% 5% 18% 35% 45% Wynn 52% 50% 25% 17% 6% -4% -4% 1% 6% 11% 15% 15% Total 58% 66% 47% 48% 37% 15% 11% 8% 16% 20% 26% 27% 2004 2005 2006 2007 2008 2009 2010 2011 2012e 2013e 2014e 2015e EBITDA Galaxy 0 0 -1 163 70 144 287 739 1,206 1,472 1,698 2,084 Melco 0 0 NA -1 188 96 490 881 993 1,177 1,383 1,992 MGM 0 0 NA 12 121 152 364 649 728 804 946 1,083 Sands 159 342 458 514 686 809 1,216 1,576 1,839 2,473 3,330 3,842 SJM 550 521 356 265 203 270 606 887 952 1,195 1,473 1,725 Wynn 0 0 61 364 484 502 893 1,196 1,190 1,332 1,456 1,643 Total 709 862 874 1,319 1,752 1,972 3,855 5,928 6,908 8,452 10,287 12,369 EBITDA Growth Galaxy NA NA NA -57% 106% 99% 158% 63% 22% 15% 23% Melco NA NA NA NA -49% 411% 80% 13% 19% 17% 44% MGM NA NA NA NA 25% 140% 78% 12% 10% 18% 15% Sands 115% 34% 12% 33% 18% 50% 30% 17% 34% 35% 15% SJM -5% -32% -25% -24% 33% 125% 47% 7% 26% 23% 17% Wynn NA NA 499% 33% 4% 78% 34% 0% 12% 9% 13% Total 22% 1% 51% 33% 13% 96% 54% 17% 22% 22% 20%
Source: Company data, HSBC estimates
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cCasino property EBITDA and growth Figure 137: Macau casino EBITDA by concessionaire by property (USDm)
2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
Galaxy Entertainment Galaxy Macau 330.6 754.3 994.3 1196.9 1344.2 1558.9 1271.2 1284.7 1441.2 1843.4 EBITDA margin 16% 18% 20% 21% 21% 22% 22% 22% 24% 26% Star World 143.3 81.9 126.3 262.2 379.8 431.3 463.4 439.8 500.2 592.2 552.3 373.6 439.9 464.2 EBITDA margin 14% 9% 10% 12% 13% 14% 14% 13% 14% 15% 16% 14% 15% 15% Other 22.8 5.9 20.2 10.5 23.5 22.8 30.7 83.4 70.7 70.6 7.6 24.2 44.6 68.1 EBITDA margin 3% 1% 4% 2% 5% 4% 5% 12% 10% 9% 1% 3% 5% 7% Galaxy Macau Phase II 204.1 413.0 602.8 866.5 983.0 1350.2 EBITDA margin 10% 13% 13% 15% 15% 17% Galaxy Macau Phase III 306.0 765.7 1144.0 EBITDA margin 9% 12% 16% Galaxy Macau Phase IV 0 EBITDA margin NA Galaxy Ent. EBITDA 163.1 69.9 143.8 286.8 738.9 1206.2 1472.4 1698.2 2083.9 2580.9 2394.5 2802.1 3590.8 4739.0 EBITDA Margin 10% 5% 9% 12% 14% 16% 17% 18% 17% 18% 17% 16% 17% 19% Melco Crown Ent City of Dreams 56.6 326.4 594.4 792.3 937.7 1111.4 1346.6 1494.9 1162.0 1051.3 1237.9 1627.3 EBITDA margin 7% 15% 18% 21% 22% 23% 25% 26% 23% 20% 21% 24% Altira -21.2 163.2 13.7 133.6 246.3 175.2 184.9 197.8 231.7 206.1 206.1 234.8 267.9 305.6 EBITDA margin -5% 9% 1% 11% 15% 14% 14% 14% 15% 13% 14% 14% 15% 15% Other (Mocha) 22.1 25.8 25.4 29.8 40.5 41.5 55.5 74.9 99.2 60.7 52.5 51.0 41.1 26.7 EBITDA margin 37% 37% 26% 27% 31% 28% 32% 35% 38% 32% 32% 34% 31% 26% Studio city 316.1 431.8 666.2 904.7 1074.6 1295.6 EBITDA margin 15% 12% 14% 16% 17% 18% Melco Ent. EBITDA -0.7 188.3 95.8 489.9 880.9 992.8 1176.9 1382.7 1991.6 2191.3 2084.8 2239.6 2618.9 3251.9 EBITDA Margin 0% 13% 7% 19% 23% 26% 28% 29% 28% 26% 24% 24% 25% 27%
Source: Company data, HSBC estimates
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c Figure 138: Macau casino EBITDA by concessionaire by property (USDm)
2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
MGM China MGM Macau 12.4 121.0 151.6 363.9 648.6 727.6 803.7 945.8 1083.2 827.1 832.2 857.2 1020.1 1106.1 EBITDA margin 19% 10% 11% 17% 18% 19% 20% 21% 22% 18% 18% 21% 22% 23% MGM Cotai 385.4 603.3 1137.5 1502.1 EBITDA margin 13% 13% 19% 21% MGM China EBITDA 12.4 121.0 151.6 363.9 648.6 727.6 803.7 945.8 1083.2 827.1 1217.7 1460.5 2157.6 2608.2 EBITDA Margin 19% 14% 15% 23% 25% 26% 28% 29% 31% 25% 23% 23% 28% 30% Sands China Venetian 144.4 497.4 554.8 810.4 1023.5 1019.0 1063.5 1273.6 1510.4 1835.8 2103.2 2133.1 2149.3 2770.2 EBITDA margin 18% 23% 24% 28% 30% 30% 30% 31% 32% 34% 35% 35% 35% 38% Sands Macao 373.5 214.4 243.4 317.5 350.7 315.9 333.4 301.8 370.7 463.5 552.8 536.9 499.4 550.0 EBITDA margin 24% 16% 19% 21% 21% 21% 22% 19% 21% 23% 25% 23% 21% 21% Four Seasons 7.3 40.3 113.7 217.8 312.3 416.5 505.9 588.1 683.1 598.0 691.3 544.6 677.9 EBITDA margin 10% 12% 16% 25% 18% 20% 21% 22% 24% 21% 23% 18% 19% Cotai Central 207.4 684.3 1282.7 1412.1 1573.1 1796.2 1960.4 1855.9 2389.3 EBITDA margin 17% 23% 31% 31% 32% 33% 35% 33% 36% Site 3 (Cotai South) 188.8 568.6 703.4 863.2 1050.6 EBITDA margin 37% 35% 37% 39% 41% Sands China Total 514.3 686.0 809.0 1216.2 1576.0 1839.2 2472.7 3330.3 3842.4 4696.7 5562.7 5964.9 5853.3 7363.5 EBITDA Margin 26% 22% 25% 29% 32% 30% 31% 34% 36% 38% 39% 40% 39% 42%
Source: Company, HSBC
Co
nsu
mer &
Retail
Ho
tels Restau
rants &
Leisu
re 12 S
eptem
ber 2012
80
ab
c Figure 139: Macau casino EBITDA by concessionaire by property (USDm)
2007a 2008a 2009a 2010a 2011a 2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
SJM Grand Lisboa 135.7 183.0 212.6 329.3 482.8 606.9 703.1 854.4 946.7 1048.3 1118.3 1135.7 1312.1 1317.0 EBITDA margin 22% 16% 18% 16% 16% 17% 18% 19% 20% 21% 22% 23% 24% 23% Lisboa Cotai 0.0 508.0 958.0 1126.0 1396.3 EBITDA margin 0% 14% 17% 18% 19% Lisboa Cotai II 0.0 0.0 0.0 EBITDA margin NA NA NA Other 139.0 28.5 56.0 208.0 283.3 303.4 383.3 484.9 621.3 872.6 188.3 243.7 182.6 21.2 EBITDA margin 4% 1% 2% 4% 4% 5% 5% 6% 8% 9% 2% 3% 2% 0% SJM EBITDA 265.4 202.6 269.5 605.5 887.3 952.0 1195.0 1473.3 1724.8 2113.0 1996.0 2571.1 2882.8 3007.9 EBITDA Margin 6% 6% 6% 8% 9% 10% 11% 12% 14% 14% 11% 15% 15% 16% Wynn Macau Wynn & Encore 364.2 484.1 501.8 892.6 1196.0 1190.4 1331.6 1456.5 1643.1 1460.9 1358.1 1254.6 1483.9 1604.6 EBITDA margin 21% 20% 22% 24% 24% 24% 25% 26% 27% 26% 25% 23% 24% 24% Wynn Cotai 408.9 1058.7 1590.0 1911.4 2475.4 EBITDA margin 16% 21% 25% 27% 30% Wynn Macau EBITDA 364.2 484.1 501.8 892.6 1196.0 1190.4 1331.6 1456.5 1643.1 1869.8 2416.8 2844.6 3395.4 4079.9 EBITDA Margin 26% 26% 28% 31% 32% 33% 34% 35% 36% 30% 31% 32% 34% 37%
Source: Company data, HSBC estimates
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Company coverage
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Galaxy Entertainment (GEG) We reiterate our Overweight (V) rating on GEG
and raise our target price by 8% to HKD38.64
from HKD35.89.
2Q12 results
Galaxy reported 2Q12 results, with EBITDA up
131% to HKD2.6bn from HKD1.1m in 2Q11 and
versus our expectation of HKD2.25bn.
The key driver of the results was the strong
performance at the Galaxy Macau resort, which
opened on 15 May 2011.
Galaxy Macau
Galaxy Macau’s EBITDA came in at HKD1.6bn
in 2Q12 versus HKD0.4bn a year ago.
Mass gaming revenue saw 36% sequential growth in
1H12 over 2H11 (versus 13% for the broader Macau
mass gaming market). The market share of mass
gross gaming revenue was 9.1%, up from 8.9% in
1Q12 and 5.0% in 2011. This growth in share came
despite the opening of Sands Cotai Central.
VIP roll for 2Q12 was stronger at HKD186.4bn
versus HKD171bn in 1Q12. The VIP win rate
looked a little high at 3.4% in 2Q12 versus a
theoretical win rate of 2.85%. The market share of
market VIP gross gaming revenue in 2Q12 was
12.4%, up from 9.9% in 1Q12 and 6.4% in 2011.
StarWorld
StarWorld performed better than expected,
generating 2Q12 EBITDA of HKD0.948bn versus
HKD0.852bn in 1Q12 and our expectation of
HKD0.8bn.
We have been concerned that StarWorld would
face revenue and earnings weakness as business
from the large junkets shifted to the new Galaxy
Macau property. This did not happen.
Target price
Our target price remains based on a weighted
average of SOTP and DCF valuations.
Given the relative uncertainty surrounding long-term
forecasts in Macau (e.g., licence expiry), we give a
30% weight to our DCF value of HKD44.52/share
(previously HKD39.25/share) and a 70% weight to
our SOTP value of HKD36.11/share (previously
HKD34.45/share), or c18.5x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled Galaxy Macau and now
include discrete earnings forecasts by
property based on market share by segment
with margins based on the location and age of
the property.
The valuation of new projects, such as Galaxy
Macau Phase II and Phase III, are now based
on discrete project forecasts for year three of
operation. We now apply a 10x multiple and
discount back to 2012 (versus a 12x project
ROA of 25% x project cost discounted
previously).
We have not included a discrete value for
Galaxy Macau Phase IV, as we have assumed
this project opens after 2020, which is our
forecast valuation window.
Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts above
and below the hurdle rate for Hong Kong stocks of
8.5%. Our target price of HKD38.64 implies a
potential return of 87% (including zero forecast
dividend yield), above the Neutral band; therefore,
we are reiterating our Overweight (V) rating.
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Potential return equals the percentage difference
between the current share price and the target price,
including the forecast dividend yield when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy, or economic changes in China that
could impair customer visitation and expenditure.
Business concentration risk also exists, given that
all of the company’s operations are largely
centred in Macau.
Figure 140: Galaxy Entertainment sum-of-the-parts valuation (HKDm, except per share data)
EBITDA (x) Value Share
Owned StarWorld 3355 13.0x 43618 26% Galaxy Macau 5868 14.0x 82157 48% Total 9224 13.6x 125775 74% City Clubs 177 10.0x 1773 1.0% Total current gaming 9401 13.6x 127548 75% Cotai Projects Phase II (2015) Gross value (2017) 4690 10.0x 46899 Develop cost -16338 Net value 30561 Disc. Net value 17341 10% Phase III (2018) Gross value (2020) 8900 10.0x 89004 Develop cost -19606 Net value 69398 Disc. Net value 28029 17% Phase IV (>2020) 0 0% Total 45370 27% Total gaming 172918 102% Construction mat. 428 7.0x 2998 2% Corporate -445 14.0x -6232 -4% Gross Assets 169683 100% Less: Land premium -850 License renewal -12520 Less: net debt Borrowings 11673 Cash 6103 Net assets 150744 Shares in issue 4174 Value per share HK$36.11
Source: HSBC estimates
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Figure 141: Galaxy Entertainment DCF valuation (USDm, except per share data)
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 9384 11455 13212 16213 20080 18629 21800 27936 36869 Less: capex -3233 -3661 -5295 -9053 -4642 -6602 -7582 -1113 -1113 Less: land premium (425) (425) Op Free CF 5726 7369 7917 7160 15438 12027 14218 26824 35757 Income Tax -54 -71 -86 -110 -141 -130 -155 -204 -276 Total 5672 7298 7830 7050 15297 11897 14063 26619 35481 Cash flows 73416 WACC 12.0% Terminal value 130508 TG 2.0% Total 203924 License renewal fee -12520 Less: Borrowings 11673 Cash 6103 Net -5570 Net Assets 185834 Shares in issue (m) 4174 Value per share HKD 44.52
Source: HSBC estimates
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Financials & valuation: Galaxy Entertainment Group Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (HKDm)
Revenue 41,151 58,421 67,100 74,255EBITDA 5,749 9,384 11,455 13,212Depreciation & amortisation -1,248 -2,470 -2,470 -2,470Operating profit/EBIT 4,501 6,914 8,985 10,742Net interest -338 -385 -335 -285PBT 3,061 6,729 8,900 10,807HSBC PBT 3,061 6,729 8,900 10,807Taxation -32 -54 -71 -86Net profit 3,004 6,615 8,749 10,623HSBC net profit 3,004 6,615 8,749 10,623
Cash flow summary (HKDm)
Cash flow from operations 5,758 7,990 10,112 11,918Capex -4,510 -3,233 -3,661 -5,295Cash flow from investment -4,973 -3,233 -3,661 -5,295Dividends -17 0 0 0Change in net debt 313 -4,794 -6,451 -6,623FCF equity 1,416 4,704 6,380 6,537
Balance sheet summary (HKDm)
Intangible fixed assets 1,270 1,221 1,171 1,121Tangible fixed assets 24,041 27,258 30,902 36,180Current assets 9,283 14,731 21,181 27,805Cash & others 6,103 11,550 18,001 24,624Total assets 35,764 44,378 54,424 66,275Operating liabilities 9,071 10,417 11,713 12,942Gross debt 11,673 12,326 12,326 12,326Net debt 5,570 776 -5,675 -12,298Shareholders’ funds 14,222 20,837 29,586 40,209Invested capital 19,421 21,242 23,540 27,540
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 113.6 42.0 14.9 10.7EBITDA 157.7 63.2 22.1 15.3Operating profit 161.6 53.6 30.0 19.5PBT 219.2 119.8 32.3 21.4HSBC EPS 219.9 117.3 32.0 21.1
Ratios (%)
Revenue/IC (x) 2.4 2.9 3.0 2.9ROIC 27.8 35.1 41.0 42.8ROE 25.7 37.7 34.7 30.4ROA 11.2 17.6 18.6 18.3EBITDA margin 14.0 16.1 17.1 17.8Operating profit margin 10.9 11.8 13.4 14.5EBITDA/net interest (x) 17.0 24.4 34.2 46.4Net debt/equity 38.0 3.6 -18.9 -30.3Net debt/EBITDA (x) 1.0 0.1 -0.5 -0.9CF from operations/net debt 103.4 1030.0 - -
Per share data (HKD)
EPS Rep (fully diluted) 0.73 1.58 2.09 2.53HSBC EPS (fully diluted) 0.73 1.58 2.09 2.53DPS 0.00 0.00 0.00 0.00Book value 3.41 4.98 7.05 9.56
Key forecast drivers
Year to 12/2011a 12/2012e 12/2013e 12/2014e
City Clubs EBITDA 183 177 239 649StarWorld EBITDA 2,955 3,355 3,605 3,422Galaxy Macau EBITDA 2,572 5,868 7,735 9,312Other EBITDA 38 -17 -124 -170Total EBITDA 5,749 9,384 11,455 13,212
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 2.2 1.5 1.2 1.0EV/EBITDA 15.9 9.3 7.0 5.6EV/IC 4.7 4.1 3.4 2.7PE* 28.4 13.1 9.9 8.2P/Book value 6.1 4.2 2.9 2.2FCF yield (%) 1.6 5.5 7.4 7.6Dividend yield (%) 0.0 0.0 0.0 0.0
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)20.70 Target price (HKD)38.64 8
6.6
Reuters (Equity) 0027.HK Bloomberg (Equity) 27 HKMarket cap (USDm) 11,187 Market cap (HKDm) 86,786Free float (%) 50 Enterprise value (HKDm) 86813Country Hong Kong Sector Hotels Restaurants & LeisureAnalyst Sean Monaghan Contact +65 66580610
Price relative
0
5
10
15
20
25
30
2010 2011 2012 2013
0
5
10
15
20
25
30
Galaxy Entertainment Grou Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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Melco Crown Entertainment (MCE) We reiterate our Overweight (V) rating on MCE
and increase our target price by 7% to HKD57.25
from HKD53.47.
2Q12 results
Melco Crown reported 2Q12 net revenue at
USD939m, down 2% over 2Q11 and down 9%
over 1Q12.
A lower VIP roll and win rate at Altira was the
primary reason for the decline in group revenue.
2Q12 EBITDA was USD219m, down 7% versus
2Q11 and down 17% versus 1Q12’s USD263m.
We attribute the weaker EBITDA to the lower
VIP performance at Altira and higher wage costs
at both properties.
City of Dreams
Net revenue of USD684m was up 22% over
2Q11, but down 5% versus 1Q12.
Lower revenue versus 1Q12 comes as a result of the
loss of market share to Sands Cotai Central located
across the road, which was opened in 2Q12.
EBITDA at USD184m was up 22% over 2Q11,
but down 7% compared to 1Q12 at USD198m.
VIP roll of USD19.1bn was similar to that in
1Q12 at USD19.2bn and in 2Q11 at USD19.3bn.
The VIP win rate at 3.00% was higher than the
theoretical win rate of 2.85%.
Mass table gaming drop increased 10% over 2Q11
to USD823m and slot handle was up 28%.
Altira
Net revenue of USD209m was down 33% from
2Q11 and 20% from 1Q12. EBITDA at USD26m
was down 64% compared to USD73m in 2Q11
and also down 53% from 1Q12.
VIP roll of USD10.2bn was 23% lower than in
2Q11 at USD13.2bn. The VIP win rate at 2.70%
was lower than the theoretical win rate of 2.85%.
Mass table gaming drop decreased 6% over 2Q11
to USD139m.
Altira is remotely located on Taipa, away from the
traditional Peninsula area and the new Cotai area.
The ROA of the property is sound, but we believe
growth will likely be limited.
Mocha Clubs
Revenue from Mocha Clubs in 2Q12 was
USD35m, up 8% over 2Q11. EBITDA came in at
USD9m, down 10% over 2Q11 due to higher
costs as mass play shifted to Galaxy Macau.
Target price
Our target price remains based on a weighted
average of SOTP and DCF valuations.
Given the relative uncertainty surrounding long-
term forecasts in Macau (e.g., licence expiry), we
give a 30% weight to our DCF value of
HKD63.75/share (previously HKD60.53/share)
and a 70% weight to our SOTP value of
HKD54.46/share (previously HKD50.45/share),
or c21x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled Melco Crown and now
include discrete earnings forecasts by
property based on market share by segment
with margins based on the location and age of
the property.
The valuation of new projects, such as Studio
City, is now based on discrete project
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forecasts for year three of operation, which
we now apply a 10x multiple and discount
back to 2012 (versus a 12x project ROA of
25% x project cost discounted previously).
We have not included a discrete value for
Melco Crown’s potential investment in Bell
Corp’s casino project in the Philippines as the
terms of the joint venture have yet to be
finalised. At present, we believe this casino
will open in 2013, with Melco Crown likely
investing USD580m and receiving 50% of the
project’s EBITDA.
Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price of HKD57.25
implies a potential return of 93% (including zero
forecast dividend yield), above the Neutral band;
therefore, we are reiterating our Overweight (V)
rating. Potential return equals the percentage
difference between the current share price and the
target price, including the forecast dividend yield
when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy, or economic changes in China that
could impair customer visitation and expenditure.
Business concentration risk also exists, given that
all of the company’s operations are largely
centred in Macau.
Figure 142: Melco Crown sum-of-the-parts valuation (USDm, except per share data)
EBITDA (x) Value Share
Altira 175 12.0x 2103 14% COD 792 14.0x 11092 74% Mocha 41 8.0x 332 2% Studio City Phase I (2015) Gross value (2017) 666 10.0x 6662 Develop cost -2000 Net value 4662 Share 60% 2797 Disc. Net value 1518 10% Total 1009 14.9x 15,045 100% Corporate -106 14.0x -1,487 Total 13,558 Less: License renewal -971 Land payments 0 Gross asset value 12,587 Less: Borrowings 2,326 Cash at bank 1158 Net assets 11419 Shares in issue 1631 Value per share USD 7.00 HKD 54.46
Source: HSBC estimates
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Figure 143: Melco Crown DCF valuation (USDm, except per share data)
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 993 1177 1383 1992 2019 1818 1878 2189 2734 Less: capex -132 -431 -661 -724 -357 -236 -313 -124 -124 Op Free CF 860 745 721 1267 1661 1582 1564 2065 2609 Income Tax Total 860 745 721 1267 1661 1582 1564 2065 2609 Cash flows 7451 48% WACC 13.0% Terminal value 8054 52% TG 2.0% Total 15505 100% License renewal fee -971 Less: Borrowings 2326 Cash 1158 Net -1168 Net Assets 13366 Shares in issue (m) 1631 Value per share USD 8.19 HKD 63.75
Source: HSBC estimates
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Financials & valuation: Melco Crown Entertainment Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (USDm)
Revenue 3,831 3,865 4,262 4,851EBITDA 881 993 1,177 1,383Depreciation & amortisation -351 -373 -372 -372Operating profit/EBIT 530 620 804 1,010Net interest -125 -115 -92 -83PBT 282 415 569 760HSBC PBT 282 415 569 760Taxation 2 -1 -1 -1Net profit 289 424 578 769HSBC net profit 289 424 578 769
Cash flow summary (USDm)
Cash flow from operations 745 983 1,167 1,373Capex -380 -172 -591 -861Cash flow from investment -585 -154 -456 -688Dividends 0 0 0 0Change in net debt -230 -829 -718 -678FCF equity 241 694 482 427
Balance sheet summary (USDm)
Intangible fixed assets 686 628 571 514Tangible fixed assets 4,079 3,920 4,061 4,433Current assets 1,506 2,486 2,629 3,696Cash & others 1,158 2,067 2,137 3,129Total assets 6,270 7,035 7,261 8,643Operating liabilities 756 937 1,033 1,092Gross debt 2,326 2,406 1,757 2,072Net debt 1,168 339 -380 -1,057Shareholders’ funds 2,956 3,380 3,959 4,728Invested capital 4,356 4,030 4,091 4,422
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 45.0 0.9 10.3 13.8EBITDA 79.9 12.7 18.5 17.5Operating profit 199.9 17.0 29.7 25.6PBT - 47.5 37.1 33.6HSBC EPS - 44.6 34.7 31.4
Ratios (%)
Revenue/IC (x) 0.9 0.9 1.0 1.1ROIC 15.1 17.4 22.5 26.3ROE 10.5 13.4 15.8 17.7ROA 7.3 8.0 9.2 10.6EBITDA margin 23.0 25.7 27.6 28.5Operating profit margin 13.8 16.0 18.9 20.8EBITDA/net interest (x) 7.0 8.6 12.8 16.6Net debt/equity 36.6 9.2 -8.5 -19.3Net debt/EBITDA (x) 1.3 0.3 -0.3 -0.8CF from operations/net debt 63.8 290.2 - -
Per share data (USD)
EPS Rep (fully diluted) 0.18 0.26 0.35 0.46HSBC EPS (fully diluted) 0.18 0.26 0.35 0.46DPS 0.00 0.00 0.00 0.00Book value 1.83 2.07 2.40 2.83
Key forecast drivers
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EBITDA: City of Dreams 594 792 938 1,111EBITDA: Altira 246 175 185 198EBITDA: Mocha 40 41 55 75EBITDA: Studio City 0 0 0 0EBITDA: Other 0 -16 -1 -1EBITDA: Total 881 993 1,177 1,383
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 2.0 1.8 1.5 1.2EV/EBITDA 8.8 7.0 5.5 4.4EV/IC 1.8 1.7 1.6 1.4PE* 21.3 14.8 11.0 8.3P/Book value 2.1 1.8 1.6 1.3FCF yield (%) 3.7 10.5 7.1 6.0Dividend yield (%) 0.0 0.0 0.0 0.0
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)29.60 Target price (HKD)57.25 9
3.4
Reuters (Equity) 6883.HK Bloomberg (Equity) 6883 HKMarket cap (USDm) 6,326 Market cap (HKDm) 49,079Free float (%) 33 Enterprise value (USDm) 6977Country Hong Kong Sector HOTELS RESTAURANTS &
LEISUREAnalyst Sean Monaghan Contact +65 66580610
Price relative
20
25
30
35
40
45
2010 2011 2012 2013
20
25
30
35
40
45
Melco Crown Entertainment Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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MGM China (MGMC) We reiterate our Overweight (V) rating on
MGMC and increase our target price by 14% to
HKD25.35 from HKD22.33
2Q12 results
Net revenue for 2Q12 was reported at HKD5.5bn,
up 6% over 2Q11 and up 1% over 1Q12. A higher
VIP win rate and mass hold rate over 1Q12 made
up for the lower VIP roll and mass drop and
market share losses to the newly opened Sands
Cotai Central.
Pre-royalty EBITDA of HKD1.55bn in 2Q12 was
15% higher than in 2Q11 and 13% higher than in
1Q12. VIP roll of HKD162.8bn was 6% lower
than in both 2Q11 and 1Q12, despite the number
of tables rising to 218 in 2Q12 from 193 in 2Q11.
The VIP win rate of 3.27% for 2Q12 was higher
than 2Q11 (3.12%) and 1Q12 (3.2%).
The VIP win rate reported was significantly
higher than the theoretical win rate of 2.85%. Due
to the improved win rate, the VIP GGR was down
only 2% versus 2Q11 and down 4% versus 1Q12.
Mass table drop of HKD4.5bn was 7% higher than
in 2Q11, but 3% lower than in 1Q12. The number of
mass gaming tables fell 8% to 208 in 2Q12 from 226
in 2Q11. The improved hold rate for 2Q12 resulted
in mass GGR increasing 17% versus 2Q11 and 7%
versus 1Q12. Slot handle of HKD9.5bn was up 39%
over 2Q11 and 6% over 1Q12. The number of slot
machines increased by 10% in 2Q12 over 2Q11.
Target price
Our target price remains based on a weighted
average of SOTP and DCF valuations.
Given the relative uncertainty surrounding long-
term forecasts in Macau (e.g., licence expiry), we
give a 30% weight to our DCF value of
HKD26.60/share (previously HKD23.38/share)
and a 70% weight to our SOTP value of
HKD24.81/share (previously HKD21.88/share),
or c19.2x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled MGM China and now include
discrete earnings forecasts by property based on
market share by segment with margins based on
the location and age of the property.
The valuation of new projects, such as MGM
Cotai, is now based on discrete project
forecasts for year three of operation, which
we now apply a 10x multiple and discount
back to 2012 (versus a 12x project ROA of
25% x project cost discounted previously).
Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price of HKD25.35
implies a potential return of 116% (including a
forecast dividend yield of 6.7%), above the
Neutral band; therefore, we are reiterating our
Overweight (V) rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy, or economic changes in China that
could impair customer visitation and expenditure.
Business concentration risk also exists, given that
all of the company’s operations are largely
centred in Macau.
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Figure 144: MGM China sum-of-the-parts valuation (HKDm, except per share data)
EBITDA (x) Value Share
MGM Macau 5661 13.0x 73,591 71% Cotai Project Opens (2017) Gross value (2019) 8850 10.0x 88,495 Develop cost -20,773 Net value 67,723 Disc. Net value 30,634 29% Total 104,225 100% Corporate -50 13.0x -650 Total 103,575 Less: Land payments 0 License renewal -6,475 Annual royalty fees -4279 Gross asset value 92,821 Less: Borrowings 4,136 Cash at bank 5590 Net assets 94275 Shares in issue 3800 Value per share 24.81 Source: HSBC estimates
Figure 145: MGM China DCF valuation (HKDm, except per share data)
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 5660 6253 7359 8427 6435 9473 11363 16786 20292 Less: capex -195 -1233 -4349 -6426 -6426 -3310 -610 -610 -610 Op Free CF 5466 5020 3010 2001 8 6163 10753 16176 19682 Income Tax Total 5466 5020 3010 2001 8 6163 10753 16176 19682 Cash flows 37988 34% WACC 12.0% Terminal value 72394 66% TG 2% Total 110382 License renewal fee -6475 Royalty payments -4279 Less: Borrowings 4136 Cash 5590 Net 1454 Net Assets 101082 Shares in issue (m) 3800 Value per share HKD 26.60
Source: HSBC estimates
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Financials & valuation: MGM China Holdings Ltd Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (HKDm)
Revenue 20,294 21,388 22,222 25,139EBITDA 4,933 5,427 5,973 7,022Depreciation & amortisation -747 -746 -746 -746Operating profit/EBIT 4,186 4,681 5,227 6,277Net interest -228 -200 -160 -120PBT 3,738 4,431 5,017 6,107HSBC PBT 3,738 4,431 5,017 6,107Taxation -459 0 0 0Net profit 3,279 4,431 5,017 6,107HSBC net profit 3,279 4,431 5,017 6,107
Cash flow summary (HKDm)
Cash flow from operations 6,356 5,971 6,561 7,659Capex -303 -195 -1,233 -4,349Cash flow from investment -303 -195 -1,233 -4,349Dividends 0 -3,101 -1,003 -1,221Change in net debt -5,418 -2,666 -4,313 -2,077FCF equity 4,343 5,473 5,063 3,086
Balance sheet summary (HKDm)
Intangible fixed assets 1,047 921 794 667Tangible fixed assets 5,357 4,938 5,557 9,291Current assets 6,285 9,215 13,624 15,804Cash & others 5,590 8,266 12,591 14,680Total assets 12,689 15,073 19,974 25,763Operating liabilities 4,139 5,182 6,059 6,951Gross debt 4,136 4,146 4,157 4,169Net debt -1,454 -4,120 -8,433 -10,511Shareholders’ funds 4,414 5,745 9,758 14,643Invested capital 2,960 1,625 1,325 4,133
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 63.2 5.4 3.9 13.1EBITDA 74.3 10.0 10.1 17.6Operating profit 103.9 11.8 11.7 20.1PBT 138.6 18.5 13.2 21.7HSBC EPS - 21.6 13.2 21.7
Ratios (%)
Revenue/IC (x) 4.8 9.3 15.1 9.2ROIC 90.4 210.6 364.3 235.4ROE 111.3 87.2 64.7 50.1ROA 30.5 33.4 29.5 27.2EBITDA margin 24.3 25.4 26.9 27.9Operating profit margin 20.6 21.9 23.5 25.0EBITDA/net interest (x) 21.6 27.1 37.3 58.5Net debt/equity -32.9 -71.7 -86.4 -71.8Net debt/EBITDA (x) -0.3 -0.8 -1.4 -1.5CF from operations/net debt - - - -
Per share data (HKD)
EPS Rep (fully diluted) 0.96 1.17 1.32 1.61HSBC EPS (fully diluted) 0.96 1.17 1.32 1.61DPS 0.00 0.82 0.26 0.32Book value 1.16 1.51 2.57 3.85
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 2.2 2.0 1.7 1.4EV/EBITDA 9.0 7.7 6.3 5.1EV/IC 15.0 25.8 28.3 8.6PE* 12.6 10.4 9.2 7.5P/Book value 10.4 8.0 4.7 3.1FCF yield (%) 9.4 11.9 11.0 6.7Dividend yield (%) 0.0 6.7 2.2 2.7
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)12.10 Target price (HKD)25.35 1
09.5
Reuters (Equity) 2282.HK Bloomberg (Equity) 2282 HKMarket cap (USDm) 5,927 Market cap (HKDm) 45,980Free float (%) 22 Enterprise value (HKDm) 41860Country Hong Kong Sector HOTELS RESTAURANTS &
LEISUREAnalyst Sean Monaghan Contact +65 66580610
Price relative
6
8
10
12
14
16
18
20
2010 2011 2012 2013
6
8
10
12
14
16
18
20
MGM China Holdings Ltd Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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Sands China Ltd (SCL) We reiterate our Overweight (V) rating on SCL
and increase our target price by 1% to HKD34.03
from HKD33.69.
2Q12 results
Sands China reported EBITDA of USD429m
slightly lower than 1Q12’s figure of USD451m
and our estimate of USD485m.
The weaker earnings were largely at the Venetian
property and the shift of play across the road to
Sands Cotai Central.
The Macau market didn’t expand substantially in
2Q12 following the opening of Sands Cotai
Central and the Venetian property felt the impact
in terms of a loss of market share.
Venetian Macau
EBITDA was USD229.2m, down 11% from
USD258m in 2Q11 and USD282m in 1Q12. We
had forecast USD290m.
VIP roll was down 16.5% and the VIP win rate
was 2.68% below the theoretical rate of 2.85%.
Mass table gaming drop was down -0.3% (flat)
and slot handle was up 34%.
Four Seasons
EBITDA was USD76.6m, up 104% from
USD37.6m in 2Q11. We had forecast USD79m.
VIP roll was up 174% (this was post the new
junkets added in late 2011) and the VIP win rate
was 3.05% versus a theoretical rate of 2.85%; in
2Q11, it was 2.25%.
Mass table gaming drop was down 6.1% and slot
handle was down 1%.
Sands Cotai Central
Sands Cotai Central reported a maiden EBITDA
of USD51.8m in 1Q12. We had expected
USD45m.
VIP roll was USD6.8bn. The VIP win rate was
3.12% and mass hold rate was 21.5%
Sands Macau
EBITDA was USD71.3m, down 25% from
USD95.6m in 2Q11 and versus USD107m in
1Q12. We had forecast USD75m.
VIP roll was down 21% and the VIP win rate was
2.58% versus a theoretical rate of 2.85%; last
year, it was high at 2.98%. Mass table gaming
drop was flat and slot handle was up 32%.
Target price
Our target price remains based on a weighted
average of SOTP and DCF valuations.
Given the relative uncertainty surrounding long-
term forecasts in Macau (e.g., licence expiry), we
give a 30% weight to our DCF value of
HKD41.00/share (previously HKD34.97/share)
and a 70% weight to our SOTP value of
HKD31.05/share (previously HKD33.14/share),
or c19x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled Sands China and now include
discrete earnings forecasts by property based
on market share by segment with margins
based on the location and age of the property.
The valuation of new projects, such as Site 3
(Cotai South), is now based on discrete
project forecasts for year three of operation,
which we now apply a 10x multiple and
discount back to 2012 (versus a 12x project
ROA of 25% x project cost discounted
previously).
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Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price of HKD34.03
implies a potential return of 34% (including a
forecast dividend yield of 4.4%), above the
Neutral band; therefore, we are reiterating our
Overweight (V) rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government gaming
policy, or economic changes in China that could
impair customer visitation and expenditure. Business
concentration risk also exists, given that all of the
company’s operations are largely centred in Macau.
Figure 146: Sands China sum-of-the-parts valuation (USDm, except per share data)
EBITDA (x) Value Share
Venetian 1019 14.0x 14266 41% Sands 316 12.0x 3790 11% Plaza Macau 312 14.0x 4373 13% SCC Opened (2012) Gross value (2014) 1283 14.0x 17958 Develop cost -5000 Net value 12958 Disc. Net value 10330 30% Site 3 Opened (2016) Gross value (2018) 703 10.0x 7034 Develop cost -3000 Net value 4034 Disc. Net value 2044 6% Other incl Ferries -15 14.0x -217 -1% Total 3618 34586 100% Less: License renewal -1554 Gross asset value 33033 Less: Borrowings 3409 Cash at bank 2491 Net assets 32115 Shares in issue 8048 Value per share USD 3.99 HKD 31.05
Source: HSBC estimates
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Figure 147: Sands China DCF valuation (USDm, except per share data)
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 1839 2473 3330 3842 4697 5563 5965 5853 7363 Less: capex -2082 -1059 -827 -1057 -1207 -217 -217 -217 -217 Op Free CF -243 1414 2503 2785 3490 5346 5748 5636 7146 Income Tax Total -243 1414 2503 2785 3490 5346 5748 5636 7146 Cash flows 18597 41% WACC 12.0% Terminal value 26286 59% TG 2% Total 44883 License renewal fee -1554 Less: Borrowings 3409 Cash 2491 Net -918 Net Assets 42411 Shares in issue (m) 8048 Value per share USD 5.27 HKD 41.00
Source: HSBC estimates
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Financials & valuation: Sands China Ltd Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (USDm)
Revenue 4,881 6,195 7,960 9,686EBITDA 1,577 1,839 2,473 3,330Depreciation & amortisation -273 -342 -408 -408Operating profit/EBIT 1,304 1,497 2,065 2,922Net interest -67 -73 -65 -55PBT 1,136 1,193 1,874 2,741HSBC PBT 1,136 1,193 1,874 2,741Taxation -2 -4 0 0Net profit 1,134 1,189 1,874 2,741HSBC net profit 1,134 1,189 1,874 2,741
Cash flow summary (USDm)
Cash flow from operations 1,516 1,749 2,397 3,254Capex -717 -2,082 -1,059 -827Cash flow from investment -785 -2,082 -1,059 -827Dividends 0 -1,200 -1,499 -2,193Change in net debt -1,175 2,252 161 -234FCF equity 729 -410 1,273 2,372
Balance sheet summary (USDm)
Intangible fixed assets 32 25 20 15Tangible fixed assets 7,033 8,000 8,300 8,200Current assets 3,063 964 1,007 1,443Cash & others 2,491 239 78 312Total assets 10,128 8,989 9,327 9,658Operating liabilities 1,203 74 38 -180Gross debt 3,409 3,409 3,409 3,409Net debt 918 3,170 3,331 3,097Shareholders’ funds 5,516 5,505 5,880 6,428Invested capital 6,434 8,675 9,211 9,525
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 16.6 26.9 28.5 21.7EBITDA 29.6 16.7 34.4 34.7Operating profit 44.5 14.8 37.9 41.5PBT 69.5 5.0 57.0 46.3HSBC EPS 70.1 4.9 57.5 46.3
Ratios (%)
Revenue/IC (x) 0.8 0.8 0.9 1.0ROIC 20.2 19.8 23.1 31.2ROE 23.0 21.6 32.9 44.5ROA 13.0 13.3 21.2 29.5EBITDA margin 32.3 29.7 31.1 34.4Operating profit margin 26.7 24.2 25.9 30.2EBITDA/net interest (x) 23.5 25.2 38.0 60.6Net debt/equity 16.6 57.6 56.7 48.2Net debt/EBITDA (x) 0.6 1.7 1.3 0.9CF from operations/net debt 165.1 55.2 71.9 105.1
Per share data (USD)
EPS Rep (fully diluted) 0.14 0.15 0.23 0.34HSBC EPS (fully diluted) 0.14 0.15 0.23 0.34DPS 0.00 0.15 0.19 0.27Book value 0.69 0.68 0.73 0.80
Key forecast drivers
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Venetian EBITDA 1,024 1,019 1,063 1,274Sands EBITDA 351 316 333 302Plaza EBITDA 217 312 416 506SCC EBITDA 0 207 684 1,283Other EBITDA -15 -15 -25 -34Total EBITDA 1,577 1,839 2,473 3,330
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 5.8 4.9 3.8 3.1EV/EBITDA 17.8 16.5 12.3 9.1EV/IC 4.4 3.5 3.3 3.2PE* 24.0 22.9 14.5 9.9P/Book value 4.9 4.9 4.6 4.2FCF yield (%) 2.7 -1.5 4.7 8.7Dividend yield (%) 0.0 4.4 5.5 8.1
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)26.20 Target price (HKD)34.03 2
9.9
Reuters (Equity) 1928.HK Bloomberg (Equity) 1928 HKMarket cap (USDm) 27,191 Market cap (HKDm) 210,941Free float (%) 30 Enterprise value (USDm) 30361Country Hong Kong Sector HOTELS RESTAURANTS &
LEISUREAnalyst Sean Monaghan Contact +65 66580610
Price relative
6
11
16
21
26
31
36
2010 2011 2012 2013
6
11
16
21
26
31
36
Sands China Ltd Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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SJM Holdings (SJM) We reiterate our Overweight (V) rating on SJM
and increase our target price by 8% to HKD22.39
from HKD20.74.
2Q12 results
SJM reported 1H12 EBITDA of HKD3.8bn, up
9% from 1H11. This was driven primarily by
Grand Lisboa, due to a higher VIP roll, which
offset declines at other self-promoted casinos
where the VIP roll was lower.
Total group revenue for 1H12 was up 5% to
HKD39.5bn from HKD37.8bn in 1H11. Gaming
revenue was up 4% during 1H12; 2Q12 gaming
revenue was down 1% versus 2Q11 and down 2%
versus 1Q12.
Total VIP roll for the group for 1H12 was down
4% over 1H11. While the VIP roll for Grand
Lisboa increased, the roll for other self-promoted
casinos and satellite casinos fell significantly,
indicating that it lost market share to other
concessionaires, especially Sands Cotai Central
(which opened in 2Q12), Sands China's Plaza, and
Galaxy Macau.
Satellite casinos had flat EBITDA, with higher mass
gaming revenue offsetting declines from VIP.
Grand Lisboa
Total revenue from Grand Lisboa was HKD13.7bn,
up 22% versus 1H11. EBITDA from the property
increased 23% to HKD2.2bn versus 1H11.
VIP GGR increased 25% versus 1H11, due to
increased roll and a better win rate.
The VIP roll of HKD363bn was up 17% over
1H11. The VIP win rate was at 2.89% versus
2.7% in 1H11 and close to the theoretical rate of
2.85%.
The average number of VIP tables increased by
11% versus a year earlier.
Mass table revenues increased 13% in 1H12 to
HKD2.9bn, despite 8% fewer tables compared to
1H11. Slot revenue increased marginally by 2%.
Other self-promoted casinos. These include
Oceanus and the older Lisboa.
Total revenue from other self-promoted casinos was
HKD5.7bn, down 4% vs. 1H11. EBITDA from
these properties decreased 7% to HKD624m. VIP
GGR decreased 10% vs. 1H11, due to lower roll.
The VIP roll at HKD115bn declined 11% over
1H11. The VIP win % was at 2.81%, slightly better
compared to 2.76% in 1H11 and close to the
theoretical rate of 2.85%. The average number of
VIP tables decreased by 7%, over the same period.
Mass table revenues increased 5% in 1H12 to
HKD2.2bn, despite 1% fewer tables compared
to 1H11.
Satellite casinos
Total revenue from satellite casinos was
HKD19.6bn, down 4% versus 1H11. EBITDA
from these casinos was flat at HKD824m.
VIP GGR fell 13% versus 1H11, due to a
decreased roll, although a better win rate partly
offset the decline.
The VIP roll of HKD411bn was down 16% versus
1H11. The VIP win rate was at 3.1% versus 3.0% in
1H11, but higher than the theoretical rate of 2.85%.
This loss in share comes despite the average
number of VIP tables increasing by 7% versus a
year earlier.
Mass table revenues increased 20% in 1H12 to
HKD6.5bn. The average number of mass tables
increased by 2% versus a year ago. Slot revenue
increased by 5% in 1H12.
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Target price
Our target price remains based on a weighted
average of SOTP and DCF valuations.
Given the relative uncertainty surrounding long-
term forecasts in Macau (e.g., licence expiry), we
give a 30% weight to our DCF value of
HKD23.10/share (previously HKD20.02/share)
and a 70% weight to our SOTP value of
HKD22.09/share (previously HKD21.05/share),
or c16.3x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled SJM and now include discrete
earnings forecasts by property based on
market share by segment with margins based
on the location and age of the property.
The valuation of new projects, such as SJM
Cotai, is now based on discrete project
forecasts for year three of operation, which
we now apply a 10x multiple and discount
back to 2012 (versus a 12x project ROA of
25% x project cost discounted previously).
We have not assumed that the potential SJM
Cotai Phase II project will open before 2020, as
we had assumed previously. This project
involves sites 7 and 8 on Cotai, which we
believe the Macau government will release for
tender, and SJM will be the most likely bidder.
Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price of HKD22.39
implies a potential return of 46% (including a
forecast dividend yield of 5.5%), above the
Neutral band; therefore, we are reiterating our
Overweight (V) rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy, or economic changes in China that
could impair customer visitation and expenditure.
Business concentration risk also exists, given that
all of the company’s operations are largely
centred in Macau.
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Figure 149: SJM DCF valuation (HKDm, except per share data
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 7407 9297 11462 13419 16439 15529 20003 22428 23402 Less: capex -152 -152 -3195 -4209 -6238 -7658 -557 -1149 -1149 Op Free CF 7255 9146 8267 9210 10201 7871 19446 21279 22253 Income Tax -36 -37 -38 -39 -40 -41 -42 -43 -44 Total 7219 9109 8229 9171 10161 7830 19404 21236 22209 Cash flows 67747 54% WACC 12.0% Terminal value 57183 46% TG 2% Total 124930 License renewal fee -15260 Less: Borrowings 3072 Cash 20571 Net 17499 Net Assets 127169 Shares in issue (m) 5505 Value per share HKD 23.10
Source: HSBC estimates
Figure 148: SJM sum-of-the-parts valuation (HKDm, except per share data)
EBITDA (x) Value Share
Grand Lisboa 4722 13.0x 61381 51% Other Casinos 2361 10.0x 23608 20% Hotel & other 324 13.0x 4214 4% Cotai Projects Phase I (2017) Gross value (2019) 8760 10.0x 87599 Develop cost -20290 Net value 67309 Disc. Net value 30447 25% Phase II (>2020) Gross value Develop cost Net value Disc. Net value 0 0% Total 119,650 Corporate -20 14.0x -280 Total 119,370 Less: Land payments 0 License renewal -15,260 Gross asset value 104,110 Less: Borrowings 3,072 Cash at bank 20571 Net assets 121609 Shares in issue 5505 Value per share 22.09
Source: HSBC estimates
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Financials & valuation: SJM Holdings Ltd. Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (HKDm)
Revenue 76,093 77,456 84,476 96,773EBITDA 6,903 7,407 9,297 11,462Depreciation & amortisation -1,121 -1,141 -1,161 -1,181Operating profit/EBIT 5,783 6,266 8,137 10,282Net interest 47 -150 -150 -150PBT 5,346 6,146 8,017 10,162HSBC PBT 5,346 6,146 8,017 10,162Taxation -35 -36 -37 -38Net profit 5,308 6,109 7,981 10,126HSBC net profit 5,308 6,109 7,981 10,126
Cash flow summary (HKDm)
Cash flow from operations 9,403 9,907 12,172 14,768Capex -800 -152 -152 -3,195Cash flow from investment -1,996 -152 -152 -3,195Dividends -1,945 -4,276 -5,101 -6,630Change in net debt -5,375 -2,781 -3,696 -1,310FCF equity 8,615 9,569 11,834 11,386
Balance sheet summary (HKDm)
Intangible fixed assets 33 33 33 33Tangible fixed assets 9,842 8,853 7,844 9,858Current assets 22,279 28,894 36,685 42,587Cash & others 14,560 20,039 26,958 31,902Total assets 33,020 38,646 45,428 53,345Operating liabilities 12,068 13,775 15,738 17,995Gross debt 3,705 6,403 9,626 13,260Net debt -10,855 -13,636 -17,332 -18,642Shareholders’ funds 17,208 18,429 20,026 22,051Invested capital 5,526 3,966 1,866 2,582
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 32.0 1.8 9.1 14.6EBITDA 46.5 7.3 25.5 23.3Operating profit 63.6 8.4 29.9 26.4PBT 51.3 15.0 30.4 26.8HSBC EPS 47.1 11.9 28.4 24.7
Ratios (%)
Revenue/IC (x) 12.3 16.3 29.0 43.5ROIC 111.0 155.1 317.3 513.5ROE 35.0 34.3 41.5 48.1ROA 17.6 16.0 18.1 19.7EBITDA margin 9.1 9.6 11.0 11.8Operating profit margin 7.6 8.1 9.6 10.6EBITDA/net interest (x) - 49.4 62.0 76.4Net debt/equity -62.9 -73.8 -86.4 -84.4Net debt/EBITDA (x) -1.6 -1.8 -1.9 -1.6CF from operations/net debt - - - -
Per share data (HKD)
EPS Rep (fully diluted) 0.95 1.07 1.37 1.71HSBC EPS (fully diluted) 0.95 1.07 1.37 1.71DPS 0.73 0.88 1.12 1.40Book value 3.11 3.27 3.50 3.78
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 1.0 1.0 0.8 0.7EV/EBITDA 11.1 10.0 7.5 6.0EV/IC 13.9 18.6 37.6 26.6PE* 16.7 14.9 11.6 9.3P/Book value 5.1 4.9 4.6 4.2FCF yield (%) 9.9 10.9 13.5 13.0Dividend yield (%) 4.6 5.5 7.1 8.8
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)15.92 Target price (HKD)22.39 4
0.7
Reuters (Equity) 0880.HK Bloomberg (Equity) 880 HKMarket cap (USDm) 11,382 Market cap (HKDm) 88,302Free float (%) 32 Enterprise value (HKDm) 73800Country Hong Kong Sector HOTELS RESTAURANTS &
LEISUREAnalyst Sean Monaghan Contact +65 66580610
Price relative
1
6
11
16
21
26
2010 2011 2012 2013
1
6
11
16
21
26
SJM Holdings Ltd. Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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Wynn Macau (WML) We reiterate our Overweight (V) rating on WML
and increase our target price by 19% to
HKD29.61 from HKD24.81.
2Q12 results
Wynn Macau reported relatively weak 2Q12
results, with revenue down 7% and EBITDA
down 4% versus 2Q11.
The 2Q12 results highlighted the pressure on
market share at both the VIP and mass gaming
operations.
VIP gaming roll was down 7% on 2Q11, and
the VIP win rate was 2.79%, broadly in line
with the theoretical rate of 2.85%.
The mass table gaming drop was down 2.7%
and the hold rate was 29.8%.
Electronic gaming machine handle declined
22%; we suggest this reflects a loss of market
share to Cotai-based properties.
Target price
Our target price remains based on a weighted
average of our SOTP and DCF valuations.
Given the relative uncertainty surrounding long-
term forecasts in Macau (e.g., licence expiry), we
give a 30% weight to our DCF value of
HKD28.36/share (previously HKD24.08/share)
and a 70% weight to our SOTP value of
HKD30.14/share (previously HKD25.12/share),
or c20.4x 2013e earnings.
Changes to valuation assumptions
The changes to our target price reflect a
combination of the following factors:
Earnings revisions outlined in Figures 25 and
26, which affect both our SOTP and DCF
valuations.
We remodelled Wynn Macau and now
include discrete earnings forecasts by
property based on market share by segment
with margins based on the location and age of
the property.
The valuation of new projects such as Wynn
Cotai is now based on discrete project
forecasts for year three of operation, which
we now apply a 12x multiple and discount
back to 2012 (versus a 12x project ROA of
25% x project cost discounted previously).
We use a higher EBITDA multiple for Wynn
Cotai as we believe the company is the best
developer of resorts with the lowest
execution risk.
Overweight (V) rating
Under our research model, for stocks with a
volatility indicator, the Neutral band is 10ppts
above and below the hurdle rate for Hong Kong
stocks of 8.5%. Our target price of HKD29.61
implies a potential return of 81% (including a
forecast dividend yield of 7.0%), above the
Neutral band; therefore, we are reiterating our
Overweight (V) rating. Potential return equals the
percentage difference between the current share
price and the target price, including the forecast
dividend yield when indicated.
Risks to our rating and estimates
Generic risks for Macau casino concessionaires
include unexpected changes in government
gaming policy, or economic changes in China that
could impair customer visitation and expenditure.
Business concentration risk also exists, given that
all of the company’s operations are largely
centred in Macau.
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Figure 150: Wynn Macau sum-of-the-parts valuation (HKDm, except per share data)
EBITDA (x) Value Share
Wynn Macau 8115 13.0x 105,493 64% Wynn Cotai Opens (2016) Gross value (2018) 12370 12.0x 148,444 Develop cost -31120 Net value 117,324 Disc. Net value 59440 36% Total 164,933 100% Corporate -180 13.0x -2,340 Total 162,593 Less: License renewal -6,951 Gross asset value 155,642 Less: Borrowings 4300 Cash at bank 5023 Net assets 156,365 Shares in issue 5188 Value per share 30.14
Source: HSBC estimates
Figure 151: Wynn Macau DCF valuation (HKDm, except per share data)
2012e 2013e 2014e 2015e 2016e 2017e 2018e 2019e 2020e
EBITDA 8115 9104 9908 11170 12617 16379 19366 23319 28256 Less: capex -4928 -6484 -9596 -11152 -260 -882 -882 -882 -882 Op Free CF 3187 2621 313 18 12357 15496 18484 22437 27374 Income Tax -20 -22 -24 -27 -29 -32 -35 -39 -43 Total 3167 2599 288 -8 12328 15464 18449 22398 27331 Cash flows 52838 34% WACC 12.0% Terminal value 100531 66% TG 2% Total 153369 License renewal fee -6951 Less: Borrowings 4300 Cash 5023 Net 723 Net Assets 147141 Shares in issue (m) 5188 Value per share HKD 28.36
Source: HSBC estimates
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Financials & valuation: Wynn Macau Limited Overweight (V) Financial statements
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Profit & loss summary (HKDm)
Revenue 29,475 28,476 30,508 32,789EBITDA 8,127 8,115 9,104 9,908Depreciation & amortisation -1,090 -1,100 -1,110 -1,120Operating profit/EBIT 7,037 7,015 7,994 8,788Net interest -211 -170 -140 -130PBT 5,774 6,565 7,546 8,320HSBC PBT 5,774 6,565 7,546 8,320Taxation -20 -20 -22 -24Net profit 5,754 6,545 7,524 8,295HSBC net profit 5,754 6,545 7,524 8,295
Cash flow summary (HKDm)
Cash flow from operations 8,995 9,035 9,996 10,770Capex -789 -4,928 -6,484 -9,596Cash flow from investment -783 -4,928 -6,464 -9,596Dividends -6,225 -6,225 -6,225 -6,225Change in net debt -1,853 2,118 2,712 5,051FCF equity 7,976 3,917 3,351 1,020
Balance sheet summary (HKDm)
Intangible fixed assets 398 398 398 398Tangible fixed assets 8,339 12,167 17,540 26,016Current assets 5,843 3,714 3,055 4,063Cash & others 5,023 2,905 2,192 3,141Total assets 15,010 16,709 21,424 30,907Operating liabilities 6,884 8,263 9,678 11,092Gross debt 4,300 4,300 6,300 12,300Net debt -723 1,395 4,108 9,159Shareholders’ funds 3,826 4,146 5,445 7,516Invested capital 2,673 5,111 9,123 16,244
Ratio, growth and per share analysis
Year to 12/2011a 12/2012e 12/2013e 12/2014e
y-o-y % change
Revenue 31.2 -3.4 7.1 7.5EBITDA 34.3 -0.2 12.2 8.8Operating profit 39.0 -0.3 14.0 9.9PBT 29.5 13.7 15.0 10.2HSBC EPS 30.3 13.7 15.0 10.2
Ratios (%)
Revenue/IC (x) 7.7 7.3 4.3 2.6ROIC 182.9 179.7 112.0 69.1ROE 141.7 164.2 156.9 128.0ROA 41.0 42.6 40.5 32.5EBITDA margin 27.6 28.5 29.8 30.2Operating profit margin 23.9 24.6 26.2 26.8EBITDA/net interest (x) 38.5 47.7 65.0 76.2Net debt/equity -18.9 33.7 75.4 121.9Net debt/EBITDA (x) -0.1 0.2 0.5 0.9CF from operations/net debt - 647.6 243.4 117.6
Per share data (HKD)
EPS Rep (fully diluted) 1.11 1.26 1.45 1.60HSBC EPS (fully diluted) 1.11 1.26 1.45 1.60DPS 1.20 1.20 1.20 1.20Book value 0.74 0.80 1.05 1.45
Key forecast drivers
Year to 12/2011a 12/2012e 12/2013e 12/2014e
Wynn Macau 36,244 34,864 36,901 39,979Wynn Cotai 0 0 0 0
Valuation data
Year to 12/2011a 12/2012e 12/2013e 12/2014e
EV/sales 3.0 3.2 3.0 3.0EV/EBITDA 10.8 11.1 10.2 9.8EV/IC 32.8 17.6 10.1 6.0PE* 15.4 13.5 11.7 10.7P/Book value 23.1 21.3 16.2 11.8FCF yield (%) 9.0 4.4 3.8 1.2Dividend yield (%) 7.0 7.0 7.0 7.0
Note: * = Based on HSBC EPS (fully diluted)
Issuer information
Share price (HKD)17.04 Target price (HKD)29.61 7
3.8
Reuters (Equity) 1128.HK Bloomberg (Equity) 1128 HKMarket cap (USDm) 11,394 Market cap (HKDm) 88,396Free float (%) 28 Enterprise value (HKDm) 89791Country Hong Kong Sector HOTELS RESTAURANTS &
LEISUREAnalyst Sean Monaghan Contact +65 66580610
Price relative
5
10
15
20
25
30
2010 2011 2012 2013
5
10
15
20
25
30
Wynn Macau Limited Rel to HANG SENG INDEX
Source: HSBC Note: price at close of 06 Sep 2012
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Disclosure appendix Analyst Certification The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Sean Monaghan
Important disclosures
Stock ratings and basis for financial analysis HSBC believes that investors utilise various disciplines and investment horizons when making investment decisions, which depend largely on individual circumstances such as the investor's existing holdings, risk tolerance and other considerations. Given these differences, HSBC has two principal aims in its equity research: 1) to identify long-term investment opportunities based on particular themes or ideas that may affect the future earnings or cash flows of companies on a 12 month time horizon; and 2) from time to time to identify short-term investment opportunities that are derived from fundamental, quantitative, technical or event-driven techniques on a 0-3 month time horizon and which may differ from our long-term investment rating. HSBC has assigned ratings for its long-term investment opportunities as described below.
This report addresses only the long-term investment opportunities of the companies referred to in the report. As and when HSBC publishes a short-term trading idea the stocks to which these relate are identified on the website at www.hsbcnet.com/research. Details of these short-term investment opportunities can be found under the Reports section of this website.
HSBC believes an investor's decision to buy or sell a stock should depend on individual circumstances such as the investor's existing holdings and other considerations. Different securities firms use a variety of ratings terms as well as different rating systems to describe their recommendations. Investors should carefully read the definitions of the ratings used in each research report. In addition, because research reports contain more complete information concerning the analysts' views, investors should carefully read the entire research report and should not infer its contents from the rating. In any case, ratings should not be used or relied on in isolation as investment advice.
Rating definitions for long-term investment opportunities
Stock ratings HSBC assigns ratings to its stocks in this sector on the following basis:
For each stock we set a required rate of return calculated from the cost of equity for that stock’s domestic or, as appropriate, regional market established by our strategy team. The price target for a stock represents the value the analyst expects the stock to reach over our performance horizon. The performance horizon is 12 months. For a stock to be classified as Overweight, the potential return, which equals the percentage difference between the current share price and the target price, including the forecast dividend yield when indicated, must exceed the required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). For a stock to be classified as Underweight, the stock must be expected to underperform its required return by at least 5 percentage points over the next 12 months (or 10 percentage points for a stock classified as Volatile*). Stocks between these bands are classified as Neutral.
Our ratings are re-calibrated against these bands at the time of any 'material change' (initiation of coverage, change of volatility status or change in price target). Notwithstanding this, and although ratings are subject to ongoing management review, expected returns will be permitted to move outside the bands as a result of normal share price fluctuations without necessarily triggering a rating change.
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*A stock will be classified as volatile if its historical volatility has exceeded 40%, if the stock has been listed for less than 12 months (unless it is in an industry or sector where volatility is low) or if the analyst expects significant volatility. However, stocks which we do not consider volatile may in fact also behave in such a way. Historical volatility is defined as the past month's average of the daily 365-day moving average volatilities. In order to avoid misleadingly frequent changes in rating, however, volatility has to move 2.5 percentage points past the 40% benchmark in either direction for a stock's status to change.
Rating distribution for long-term investment opportunities
As of 12 September 2012, the distribution of all ratings published is as follows: Overweight (Buy) 49% (27% of these provided with Investment Banking Services)
Neutral (Hold) 38% (25% of these provided with Investment Banking Services)
Underweight (Sell) 13% (20% of these provided with Investment Banking Services)
Information regarding company share price performance and history of HSBC ratings and price targets in respect of its long-term investment opportunities for the companies the subject of this report,is available from www.hsbcnet.com/research.
HSBC & Analyst disclosures Disclosure checklist
Company Ticker Recent price Price Date Disclosure
GALAXY ENTERTAINMENT GROU 0027.HK 23.15 11-Sep-2012 5, 6, 7, 11MELCO CROWN ENTERTAINMENT LTD 6883.HK 31.20 11-Sep-2012 6, 11MGM CHINA HOLDINGS LTD 2282.HK 12.68 11-Sep-2012 4SANDS CHINA LTD 1928.HK 29.45 11-Sep-2012 11
Source: HSBC
1 HSBC* has managed or co-managed a public offering of securities for this company within the past 12 months. 2 HSBC expects to receive or intends to seek compensation for investment banking services from this company in the next
3 months. 3 At the time of publication of this report, HSBC Securities (USA) Inc. is a Market Maker in securities issued by this
company. 4 As of 31 August 2012 HSBC beneficially owned 1% or more of a class of common equity securities of this company. 5 As of 31 July 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of investment banking services. 6 As of 31 July 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-investment banking securities-related services. 7 As of 31 July 2012, this company was a client of HSBC or had during the preceding 12 month period been a client of
and/or paid compensation to HSBC in respect of non-securities services. 8 A covering analyst/s has received compensation from this company in the past 12 months. 9 A covering analyst/s or a member of his/her household has a financial interest in the securities of this company, as
detailed below. 10 A covering analyst/s or a member of his/her household is an officer, director or supervisory board member of this
company, as detailed below. 11 At the time of publication of this report, HSBC is a non-US Market Maker in securities issued by this company and/or in
securities in respect of this company Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking revenues.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research.
* HSBC Legal Entities are listed in the Disclaimer below.
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Additional disclosures 1 This report is dated as at 12 September 2012. 2 All market data included in this report are dated as at close 06 September 2012, unless otherwise indicated in the report. 3 HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its
Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business. Information Barrier procedures are in place between the Investment Banking and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner.
4 As of 31 August 2012, HSBC and/or its affiliates (including the funds, portfolios and investment clubs in securities managed by such entities) either, directly or indirectly, own or are involved in the acquisition, sale or intermediation of, 1% or more of the total capital of the subject companies securities in the market for the following Company(ies) :MGM CHINA HOLDINGS LTD
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Disclaimer * Legal entities as at 8 August 2012 ‘UAE’ HSBC Bank Middle East Limited, Dubai; ‘HK’ The Hongkong and Shanghai Banking Corporation Limited, Hong Kong; ‘TW’ HSBC Securities (Taiwan) Corporation Limited; 'CA' HSBC Bank Canada, Toronto; HSBC Bank, Paris Branch; HSBC France; ‘DE’ HSBC Trinkaus & Burkhardt AG, Düsseldorf; 000 HSBC Bank (RR), Moscow; ‘IN’ HSBC Securities and Capital Markets (India) Private Limited, Mumbai; ‘JP’ HSBC Securities (Japan) Limited, Tokyo; ‘EG’ HSBC Securities Egypt SAE, Cairo; ‘CN’ HSBC Investment Bank Asia Limited, Beijing Representative Office; The Hongkong and Shanghai Banking Corporation Limited, Singapore Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Securities Branch; The Hongkong and Shanghai Banking Corporation Limited, Seoul Branch; HSBC Securities (South Africa) (Pty) Ltd, Johannesburg; HSBC Bank plc, London, Madrid, Milan, Stockholm, Tel Aviv; ‘US’ HSBC Securities (USA) Inc, New York; HSBC Yatirim Menkul Degerler AS, Istanbul; HSBC México, SA, Institución de Banca Múltiple, Grupo Financiero HSBC; HSBC Bank Brasil SA – Banco Múltiplo; HSBC Bank Australia Limited; HSBC Bank Argentina SA; HSBC Saudi Arabia Limited; The Hongkong and Shanghai Banking Corporation Limited, New Zealand Branch incorporated in Hong Kong SAR
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Europe
Consumer Brands & Retail Antoine Belge Head of Consumer Brands and Retail Equity Research +33 1 56 52 43 47 [email protected]
Sophie Dargnies Analyst +33 1 56 52 43 48 [email protected]
Cedric Besnard Analyst +33 1 56 52 43 66 [email protected]
Florence Dohan Analyst +44 207 992 4647 [email protected]
Jérôme Samuel Analyst +33 1 56 52 44 23 [email protected]
Emmanuelle Vigneron Analyst +33 1 56 52 43 19 [email protected]
Paul Rossington Analyst +44 20 7991 6734 [email protected]
Leisure Lena Thakkar Analyst +44 20 7991 3448 [email protected]
CEEMEA
Consumer Brands & Retail Michele Olivier Analyst +27 11 6764208 [email protected]
Specialist Sales
Lynn Raphael +44 20 7991 1331 [email protected]
David Harrington +44 20 7991 5389 [email protected]
Asia
Consumer Brands & Retail Erwan Rambourg Head of Consumer Brands and Retail Equity Research +852 2996 6572 [email protected]
Chris Zee Analyst +852 2822 2912 [email protected]
Christopher Leung Analyst +852 2996 6531 [email protected]
Lina Yan Analyst +852 2822 4344 [email protected]
Catherine Chao Analyst +852 2996 6570 [email protected]
Karen Choi Analyst +822 3706 8781 [email protected]
Jena Han Associate +822 3706 8772 [email protected]
Sean Monaghan Analyst +65 6658 0610 [email protected]
Permada (Mada) Darmono Analyst +65 6658 0613 [email protected]
Thilan Wickramasinghe Analyst +65 6658 0609 [email protected]
Abel Lee Analyst +8862 6631 2866 [email protected]
Amit Sachdeva Analyst +91 22 2268 1240 [email protected]
North & Latin America
Consumer & Retail Francisco J Chevez Analyst, Latin America & US +1 212 525 5350 [email protected]
Stewart Ragar Analyst +1 212 525 3460 [email protected]
Manisha A Chaudhry Associate, Latin America & US +1 212 525 3035 [email protected]
Beverages Lauren Torres Analyst, Global Beverages +1 212 525 6972 [email protected]
James Watson Analyst, Global Beverages +1 212 525 4905 [email protected]
Food & Agricultural Products Pedro Herrera Analyst, Global Food & Agricultural Products +1 212 525 5126 [email protected]
Ravi Jain Analyst, Global Food & Agricultural Products +1 212 525 3442 [email protected]
Diego T Maia Analyst, Food & Agricultural Products, Brazil +55 11 33718192 [email protected]
Household Durables Francisco Suarez Analyst, Household Durables, Mexico +52 55 5721 2173 [email protected]
Berenice Munoz Associate, Household Durables, Mexico +52 55 5721 5623 [email protected]
Global Consumer Brands & Retail Research Team