Philippine Gaming Sector - Credit Suisse

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, AND THE STATUS OF NON-US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.

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30 September 2014

Asia Pacific/Philippines

Equity Research

Casinos & Gaming (Hotels/Restaurants/Gaming PH (Asia))

Philippine Gaming Sector ASSUMING COVERAGE

All the right cards

Figure 1: Philippine GGR forecasts (US$ bn)

1.21.3

1.71.9

3.0

3.5

2.8

3.4

4.1

.0

.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2011 2012 2013 2014E 2015E 2016E

CS Innovation Group

34% CAGR

Source: The Innovation Group, Credit Suisse estimates

■ Assuming coverage on the Philippine gaming sector: A 34% CAGR for

2014-16E. We forecast Philippine GGR to have a 34% CAGR from 2014-

16E on the back of new and imminent gaming capacity, the formation of

critical mass within Entertainment City and a spill-over effect from Macau.

■ Window of opportunity: Synergies within the Entertainment City

beginning in 4Q14. We believe that supply constraints and policy

restrictions for Macau and other regional players will create a window of

opportunity for the Philippine gaming sector. We expect critical mass to be

formed once City of Dreams Manila opens in Entertainment City in 4Q14

following Solaire. As evidenced in the past with Macau, operators within the

same vicinity mutually benefit from synergies that form within that area.

■ VIP to drive GGR growth; growing mass to serve as volatility cushion.

The Philippines has the lowest gaming taxes in the region, which allows

junket commissions to reach 1.4-1.6% or as much as 14% more than Macau.

We believe VIP will drive GGR growth in the near term, as operators sign

more junkets to ramp up operations. Stable mass gaming revenues should

eventually follow on the back of favourable demographics supporting the

domestic economy.

■ Prefer BLOOM to RWM. We assume coverage on RWM and BLOOM with

OUTPERFORM ratings and target prices of P11.4 (+15%) and P16.0

(+21%), respectively. Key risks include intensified competition in the

Philippine gaming industry and unforeseen changes in PAGCOR policies.

Research Analysts

Patricia Palanca

63 2 858 7752

[email protected]

Kenneth Fong

852 2101 6395

[email protected]

Alvin Arogo

63 2 858 7716

[email protected]

30 September 2014

Philippine Gaming Sector 2

Focus charts Figure 2: Philippine gaming—GGR forecast (US$ bn) Figure 3: Philippine gaming—GGR by segment

1.21.3

1.71.9

3.0

3.5

2.8

3.4

4.1

.0

.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2011 2012 2013 2014E 2015E 2016E

CS Innovation Group

53% 49% 47% 48% 48% 47%

18%20% 24% 24% 23% 22%

29% 30% 28% 28% 28% 29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014E 2015E 2016E

VIP Mass Slots ETGs

Source: Innovation Group, Credit Suisse estimates Note: Data excludes PAGCOR. Source: Credit Suisse estimates

Figure 4: Philippine gaming—gaming capacity Figure 5: Philippine gaming—GGR market share

130 119 219

375 395 408 156 168

363

638 658 678

-

200

400

600

800

1,000

1,200

2011 2012 2013 2014E 2015E 2016E

VIP Mass

50% 51%41%

34%27% 28%

20% 34%

33% 33%

2% 21%22%50% 49%

38%30%

19% 15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014E 2015E 2016E

Resorts World Manila Solaire Others PAGCOR

Note: Data excludes PAGCOR. Source: Credit Suisse estimates Source: Credit Suisse estimates

Figure 6: GGR forecasts (US$ mn) Figure 7: VIP win/table/day (US$)

628

806

980

643

1,002

1,125

-

200

400

600

800

1,000

1,200

2014E 2015E 2016E

Resorts World Manila Solaire

6,743 7,620

8,354 8,440

10,043

11,469

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2014E 2015E 2016E


Source: Credit Suisse estimates Source: Credit Suisse estimates

30 September 2014


All the right cards A 34% CAGR in GGR from 2014-16E

We estimate Philippine gross gaming revenue (GGR) to double from US$1.7 bn in 2013 to

US$3.5 bn in 2016E, or a CAGR of 34% over 2014-16E. A total of 440 tables (+76% from

now) will be added in 4Q14 with the opening of City of Dreams Manila and Solaire's Phase 1A

expansion.

Window of opportunity: Synergies within

Entertainment City beginning in 4Q14

We believe that the limited number of new casino projects and additional gaming supply

within the region will provide a window of opportunity for the Philippine gaming industry.

We expect it to receive spill-over from Macau, as Chinese VIP players look outside of

Macau, at least in the near term, on the back of newly implemented policy restrictions.

Also, new gaming capacity in Macau will only open by mid-2015 at the earliest. Macau's

gaming table expansion is limited to 3% YoY growth for the next ten years. Likewise,

Genting Highlands remains the sole venue for legalised casino gambling in Malaysia and

the Singapore casino gaming market is still limited to a duopoly through 2017. It is our

view that the Philippines is well-positioned to capitalise on the constrained capacity of

regional competitors. City of Dreams Manila and Solaire's Phase1A expansion are

scheduled to be launched in 4Q14 and should be able to build critical mass in the area as

was witnessed in the past with Macau. We expect that the two integrated resorts will also

derive benefits from the strong retail base of Melco's partner in CoD Manila, the SM group.

The group's largest mall—SM Mall of Asia—generates average foot traffic of around

200,000 people daily and is roughly 1km away from CoD Manila.

VIP to drive GGR growth; growing mass to serve as

volatility cushion

The Philippines has the lowest gaming taxes in the region, which allows junket

commissions to reach 1.4-1.6% or as much as 14% over that of Macau. Moreover, the

Philippines is also relatively more attractive versus its regional counterparts due to: (1) the

imminent supply of gaming capacity; (2) a shorter travel time from China; and (3) evident

government support of gaming and tourism. According to a study by the United Nations,

the Philippines will also enter a "demographic window" by 2015 whereby most of the

population will be of working age (15-65 years old). We expect that such favourable

demographics will eventually provide earnings stability in the form of mass gaming

revenues and soften the earnings volatility from the VIP segment.

Prefer BLOOM (+21%) over RWM (+15%)

We assume coverage on RWM and BLOOM with OUTPERFORM ratings and target

prices of P11.4 and P16.0, respectively. BLOOM has the first mover advantage inside

Entertainment City and should benefit from the synergies with the opening of CoD Manila

in 4Q14. We believe most of the forecast growth in the industry will be captured by the

new players—Solaire and CoD Manila—and we expect RWM and PAGCOR-owned

casinos to lose some market share. We estimate BLOOM will achieve leading market

share by 2015E. Despite a lack of catalysts and low margins for RWM, we retain an

OUTPERFORM rating, as the company has substantial expansion plans, albeit not in the

near term. Key risks include intensified competition in the Philippine gaming industry and

unforeseen changes in PAGCOR policies.

Philippine GGR to double to

US$3.5 bn in 2016E

Critical mass to build up in

the Entertainment City as

synergies form within the

area

The VIP segment to drive

near-term growth while the

mass market gradually

builds up

BLOOM is well-positioned to

capitalise on the industry

positives that we see on the

horizon

30 September 2014


Valuation comparison Figure 8: Valuation summary

Share Up/dwn P/E EPS growth EV/EBITDA ROE Div. yield

Company Mkt cap CS price TP pot. (x) (%) (x) (%) (%)

name Ticker (US$ mn) rat. (l.c.) (l.c.) (%) 14E 15E 14E 215E 14E 15E 14E 15E 14E 15E

Philippines 33.9 25.6 -185.2 32.0 16.9 11.1 27.2 28.5 0.4 0.3

Bloomberry BLOOM.PS 3,127 O 13.3 16.0 20 30.2 22.4 (439) 34 17.3 10.8 28.8 29.0 - -

Travellers RWM.PS 3,469 O 9.9 11.4 15 37.3 28.5 44 30 16.6 11.4 25.8 28.0 0.8 0.5

Macau 16.1 14.4 15.0 11.8 12.7 11.7 48.8 48.8 4.7 5.2

MGM China 2282.HK 11,261 O 23.0 30.0 30 14.3 14.1 15 1 12.4 12.8 90.5 81.0 5.3 5.7

Sands China 1928.HK 43,130 O 41.5 57.1 38 15.6 13.6 25 14 13.2 12.0 42.4 46.4 6.4 7.3

Wynn Macau 1128.HK 16,970 N 25.4 29.0 14 17.0 16.6 0 2 14.8 15.0 89.6 88.3 5.0 4.8

Galaxy 0027.HK 25,340 N 46.4 55.0 19 17.1 15.1 16 13 13.2 11.2 32.8 31.1 1.8 2.1

SJM 0880.HK 11,179 N 15.3 17.6 15 12.1 10.8 (9) 13 7.8 7.2 27.7 26.4 6.0 6.8

Melco International 0200.HK 3,660 O 18.2 22.8 25 15.1 12.3 15 23 n/a n/a 14.8 16.1 1.3 1.6

Macau Legend 1680.HK 3,292 N 4.0 3.9 (2) 32.8 23.4 36 40 23.3 18.5 11.6 13.1 - -

Other Asia 18.2 16.7 12.5 9.0 7.4 6.6 8.5 8.8 1.3 1.4

NagaCorp Limited 3918.HK 1,641 O 5.6 7.5 34 11.6 10.6 (1) 9 9.1 7.3 23.4 26.9 5.3 6.6

Genting Malaysia GENM.KL 7,568 N 4.2 4.0 (4) 16.6 15.2 (7) 9 9.4 8.2 9.4 9.8 1.8 1.8

Genting Singapore GENS.SI 10,947 O 1.1 1.7 49 22.0 19.9 4 11 8.9 8.1 6.4 6.6 0.9 0.9

Genting Berhad GENT.KL 10,685 O 9.3 11.0 18 16.5 15.4 37 7 4.2 3.8 7.9 7.5 0.7 0.7

Sector average 22.8 18.9 -52.5 17.6 12.3 9.8 28.2 28.7 2.1 2.3

Note: Pricing as of 29 September 2014.

Source: Company data, Credit Suisse estimates

30 September 2014


A 34% CAGR in GGR from 2014-16E When Solaire opened in March 2013, it gained 20% of GGR market share while the overall

industry GGR grew 30% YoY. With additional gaming capacity expected by year-end, we

continue to be positive on the Philippine gaming sector, as we believe supply will continue

to drive demand. The opening of City of Dreams Manila and Solaire's Phase 1A expansion

in 4Q14 will increase the number of gaming tables by 76% to more than 1,000 before

year-end. Consequently, we forecast Philippine GGR to experience a 34% CAGR over

2014-16E. Our Macau industry forecast reflects a 11% CAGR over the same period. Our

industry forecasts are relatively conservative, at about 20% below those of The Innovation

Group, a consulting services provider for the gaming, entertainment and hospitality

industries. It should be noted that our industry GGR forecasts do not include smaller

licensed casinos outside of Metro Manila. We also do not account for Manila Bay Resorts

and Resorts World Bayshore in our estimates.

Figure 9: Philippine gaming—GGR forecast (US$ bn)

1.21.3

1.71.9

3.0

3.5

2.8

3.4

4.1

.0

.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2011 2012 2013 2014E 2015E 2016E

CS Innovation Group

34% CAGR

Source: Credit Suisse estimates

Figure 10: Macau GGR (US$ bn) Figure 11: 2013 Comparative GGR (US$ bn)

33.5

38.0

45.1 45.5 49.2

56.6

-

10.0

20.0

30.0

40.0

50.0

60.0

2011 2012 2013 2014E 2015E 2016E

11% CAGR

1.6 2.2 2.74.4

6.1

46.6

0

5

10

15

20

25

30

35

40

45

50

Source: Credit Suisse estimates Source: The Innovation Group

Industry growth to continue

to be driven by supply, most

of which will due by 4Q14

30 September 2014


We expect the VIP segment to be an important driver of this GGR growth, as the

Philippines is set to become the most viable overseas destination in the region for Chinese

VIP players. Other than having the lowest gaming taxes in the region, the Philippines is

also relatively more attractive versus its regional counterparts due to: (1) the imminent

supply of gaming capacity; (2) shorter travel time from China; and (3) evident government

support of gaming and tourism. We estimate that 80-90% of VIP revenues come from

foreigners and around 30-40% of that number from mainland China. The mass market

segment is generally composed of walk-in customers. We estimate that the Philippine

mass market is almost completely composed of locals. The slot machines are slightly

more popular than the mass tables accounting for 29% versus 24% of 2013 GGR.

Figure 12: Philippine gaming capacity

(number of tables)

Figure 13: Philippine GGR by segment

130 119 219

375 395 408 156 168

363

638 658 678

-

200

400

600

800

1,000

1,200

2011 2012 2013 2014E 2015E 2016E

VIP Mass

53% 49% 47% 48% 48% 47%

18% 20% 24% 24% 23% 22%

29% 30% 28% 28% 28% 29%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014E 2015E 2016E

VIP Mass Slots ETGs

Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

Revenue assumptions

VIP win/table/day

We assume an average VIP win/table/day of P290,065 (US$6,574) in 2014E, and for this

to grow 15% YoY in 2015E and 14% YoY in 2016E. Macau's average 3Q14 VIP

win/table/day is ~US$30,000.

Mass win/table/day

We assume an average mass win/table/day of P94,539 (US$2,143) in 2014E and for this

to grow 9% and 7% YoY in 2015E and 2016E, respectively. Macau's 3Q14 average mass

win/table/day is ~US$12,000.

Slots win/table/day

We assume an average slot win/table/day of P12,906 (US$293) in 2014E and for this to

grow 11% YoY in 2015E and 2016E. Macau's 3Q14 average slots win/table/day is

~US$430.

30 September 2014


Figure 14: Philippine gaming—GGR forecasts (P mn)

GGR (P mn) 2011 2012 2013 2014E 2015E 2016E

Resorts World Manila 25,428 28,058 30,004 27,714 34,754 42,225

YoY 10% 7% -8% 25% 21%

VIP 13,475 13,708 15,120 13,030 15,968 19,241

YoY 2% 10% -14% 23% 20%

Mass 4,544 5,683 6,117 6,093 7,150 8,260

YoY 25% 8% 0% 17% 16%

Slots 7,358 8,639 8,758 8,313 11,344 14,419

YoY 17% 1% -2% 36% 27%

Breakdown

VIP 53% 49% 50% 47% 46% 46%

Mass 18% 20% 20% 22% 21% 20%

Slots 29% 31% 29% 30% 33% 34%

Solaire 14,774 28,366 43,192 48,479

YoY 52% 52% 12%

VIP 6,096 14,271 26,070 29,770

YoY 0% 85% 83% 14%

Mass 4,627 7,050 7,747 7,927

YoY 0% 21% 10% 2%

Slots 4,051 7,045 9,375 10,782

YoY 0% 38% 33% 15%

Breakdown

VIP 41% 50% 60% 61%

Mass 31% 25% 18% 16%

Slots 27% 25% 22% 22%

Others 25,010 27,479 27,583 26,323 52,478 57,928

Total 50,438 55,537 72,361 82,403 130,425 148,631

YoY 10% 30% 14% 58% 14%


Valuation versus Macau

Considering the different gearing ratios and capex schedules, we use EV/EBITDA for peer

comparison. Bloomberry's 2015E EV/EBITDA of 10.8x and Traveller's 11.4x are both at a

discount to Macau's 11.7x. At a 2015E P/E of 25.4x, Philippine gaming names are trading

at a 44% premium to the Philippine Stock Exchange Index (PSEi). This is a lower premium

compared to Macau, which is trading at a 2015E P/E of 14.7x or a premium of 47% to the

Hang Seng Index (HSI). However, since the Philippine operators are still heavy on capex

this year, it will take some time before they yield any significant dividend.

Figure 15: Philippine gaming versus Macau

Company Mkt cap Share TP P/E (x) EV/EBITDA (x) Dividend yield (%)

name (US$ mn) price (l.c.) (l.c.) 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E

Philippines 33.9 25.6 19.9 16.9 11.1 9.0 0.4 0.3 0.4

Bloomberry 3,127 13.3 16.0 30.2 22.4 18.1 17.3 10.8 9.1 - - -

Travellers 3,469 9.9 11.4 37.3 28.5 21.5 16.6 11.4 8.9 0.8 0.5 0.7

Macau 16.1 14.4 12.5 12.7 11.7 9.8 4.7 5.2 5.8

Note: Priced as of 29 September 2014. Source: Company data, Credit Suisse estimates

Our valuations are at a

slight discount to Macau

30 September 2014


Window of opportunity: Synergies within Entertainment City beginning in 4Q14 Critical mass in the Entertainment City formed by

mutualism

The gambling behaviour in Macau suggests that players normally visit two to three

properties per trip. Solaire, post its Phase1A expansion, will have 10,000 sq m of retail

space. The expansion will coincide with the opening of City of Dreams in 4Q14 and

together, these projects should be able to build critical mass in the area, benefiting both

casino operators. Solaire and CoD Manila are already in talks to provide a shuttle service

to increase connectivity between their respective properties.

We have witnessed this kind of relationship in the past among the casino operators in

Macau. Sands Macau was the first casino to open in Macau after the gaming industry was

liberalised by the government in 2002. We saw GGR increase by 23% YoY to US$7.1 bn

in 2006 when Wynn Macau opened two years after Sands Macau. GGR increased further

by 47% YoY when the Venetian and MGM Grand opened in 2007.

Figure 16: Macau gaming tables versus GGR

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Gaming tables GGR ($ bn)

Sands

Wynn

Venetian

MGM Grand

Grand Lisboa

City of DreamsGalaxy

Sands

Cotai

Source: Credit Suisse research

We expect critical mass to

build up in Entertainment

City, as Solaire and City of

Dreams Manila mutually

benefit from their close

proximity

30 September 2014


Figure 17: Philippine gaming tables versus GGR

-

200

400

600

800

1,000

1,200

.0

.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2011 2012 2013 2014E 2015E 2016E

Gaming tables GGR ($bn)

CoD Manila

Solaire Phase 1A

Manila Bay

Resorts

Solaire Phase 1


New airport and infrastructure developments to

increase connectivity to Entertainment City

Within the next two months, several foreign carriers, including Delta Airlines, KLM Royal

Dutch Airlines, Emirates Airlines, Singapore Airlines and Cathay Pacific, will be transferred to

NAIA Terminal 3 from the congested NAIA Terminal 1. This should alleviate travel pains and

encourage more near-term tourist arrivals. For the long run, government is also reviewing

proposals for a new airport. There are three possible airport sites being considered:

■ Reclaimed land in the Manila Bay area. San Miguel, the proponent of this site,

claims it can finish construction within five years. The design was drafted by US

engineering and design firm Aecom Technology Corp.

■ Reclaimed land in Sangley Point. The proposal by the Japan International

Cooperation Agency (JICA) identifies Sangley Point, a former US Air Force base in

Manila Bay, as a possible site for a new airport. JICA estimates that the airport can

handle 66 mn passengers a year by 2025 and 100 mn by 2040.

■ Clark International Airport. Clark, now a civilian airport, is also a former US Air Force

base 60 miles north of Manila. JICA recommends that Clark serves as a secondary

airport catering to Central and Northern Luzon.

The two major road infrastructure projects that will increase connectivity to the

Entertainment City are:

■ NAIA Expressway. The NAIA Expressway, a US$345 mn public private partnership

(PPP) project, consists of a four-lane, 7.75 km elevated expressway and a 2.22 km

feeder road that will give access to NAIA Terminals I, II and III and connect the airport

to the Skyway ,the Manila-Cavite Toll Expressway and Entertainment City. The

Department of Public Works and Highways (DPWH) estimates that the project will be

completed by 2016. However, San Miguel, the winning bidder of this project, expects

this to be operational by mid-2015.

■ LRT 1 Extension. The LRT Line 1 South Extension Project consists of the

construction of an estimated 11.7 km length from LRT Line 1 terminus at the Baclaran

Terminal (close to the Entertainment City) to Bacoor Cavite. The entire length of the

integrated LRT 1 upon completion will be about 32.4 km. This should increase access

to Entertainment City from towns south of Metro Manila. The target completion period

for this project is 3Q18.

Improvements in airport and

infrastructure to help

encourage tourist arrivals

30 September 2014


VIP to drive GGR growth; growing mass to serve as volatility cushion Low gaming taxes to attract junkets

The Philippines has the lowest gaming taxes in the region, providing more flexibility to

operators to give higher junket commissions. Junket commission in the Philippines can

range from 1.4-1.6%, and reach as much as 14% more than that of Macau.

Figure 18: Gaming licence fees and corporate tax rates in Asia (%)

5%

12%

25%

39%

17%

21%

25%

39%

30%

17%

25%

12%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Philippines Singapore Malaysia Macau

VIP Mass Corporate Tax

Note: Singapore and Malaysia gaming taxes include GST; Macau corporate tax only applies to non-gaming.

Philippine mass gaming tax which includes a 2% cultural restoration tax

Source: The Innovation Group

Promising signs of improvements in the junket business can be found in visitor arrival

data, which shows that the Philippines is becoming more attractive to Chinese tourists. In

2013, there was substantial growth in the number of visitors, particularly from mainland

China. This increased by 70% YoY to 426,352, resulting in a four-year CAGR of 29%. The

Philippine Tourism Board expects Chinese visitor arrivals to grow more than 30% annually

and reach over 1 mn by 2016.

Philippine operators have

more room to give higher

commissions on the back of

low gaming taxes

Latest tourist arrival data

shows signs of improvement

in the junket business

30 September 2014


Figure 19: Chinese tourist arrivals (% YoY)

0%

10%

20%

30%

40%

50%

60%

70%

80%

2010 2011 2012 2013

Singapore Philippines Macau Malaysia

Source: Philippine Tourism Board

Spillover effect from Macau and other regional players

Chinese transit visa

Because visits to Macau are restricted to once every two months under the individual

visitor scheme, Chinese nationals travel to Macau under a transit visa to work around this.

Under the transit visa, Chinese citizens can stay in Macau for five days, fly to another

country and then stay in Macau for another five days. As the Philippine gaming market

grows, we believe that the Philippines will be a chief destination for players travelling with

transit visas because it is a convenient two-hour flight away. The shorter travel time means

a lower opportunity cost for the junket operators.

Anti-corruption campaign in China

In July 2014, President Xi Jinping intensified the anti-corruption campaign in China with

the official investigation of former domestic security chief, Zhou Yongkang. The ongoing

crackdown on corruption has placed a significant focus on the illegal transfer of funds

overseas and has thus contributed to Macau's recent declines in gambling revenues. In

order to lay low amid the sensitive political situation and scrutiny, junket operators may

direct high-profile Chinese gamblers away from Macau to other locations. Considering the

Philippines' active casino project pipeline and relatively close proximity between the two

countries, we believe that the Philippines is primed to become a viable alternative to

Chinese gamblers, resulting in a spillover of VIP revenues to the Philippines.

Regulatory changes that

recently affected Macau

gaming and the lack of near-

term regional supply should

provide spillover VIP

revenue to the Philippines

30 September 2014


Figure 20: Flight duration from China

2.33 hours

4.17 hours

4.17 hours

Source: Google Maps, Credit Suisse research

Lack of regional supply

We believe that the limited number of new casino projects and additional gaming supply

within the region will provide a window of opportunity for the Philippine gaming industry.

While Macau remains a strong contender in the competitive gaming market, gaming table

expansion is still limited to 3% for the next ten years, following Macau's cap on gaming

tables. In addition to this, the Macau Secretary of Economy and Finance is considering

placing a cap on the number of electronic table games as well. Significant additional

capacity in Cotai is not scheduled to be operational until mid-2015.

Singapore and Malaysia also face constraints in the growth of additional gaming supply

due to regulation and social scrutiny. In Malaysia, Muslim groups have strongly denounced

gambling and the Malaysian government still bans most Muslims from accessing the

Genting Highlands, the sole venue for legalised casino gambling in Malaysia. The Muslim

demographic of Malaysia accounts for more than 60% of the country's population.

Additionally, the Singapore casino gaming market has been limited to a duopoly since the

signing of contracts through 2017. The Singapore government has made it clear that the

two current casino operators in Singapore would not be allowed to expand their gaming

floor area, leaving executives to turn to tourism and conventions for growth.

The Philippines is one of the few countries in the region with plans to increase its gaming

supply in the near future, with both City of Dreams Manila and Solaire's Phase 1A expansion

opening later this year. It is our view that the Philippines is well-positioned to capitalise on

the constrained capacity of nearby competitors, as restrictions in neighbouring markets may

cause regional consumers to choose Philippine casinos over other casinos. With a relatively

lower hotel occupancy rate and immediate new supply of gaming tables, the Philippines is

likely to receive a spillover in VIP players from other regions.

30 September 2014


Figure 21: Average hotel occupancy rates (%)

68% 70%67%

70%

85% 86% 87% 86%

59% 61% 62% 62%

80%84% 84% 83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013

Philippines Singapore Malaysia Macau

Source: Respective tourism departments

30 September 2014


Favourable demographics provide volatility cushion Demographic window in 2015

According to a study by the United Nations, the Philippines will enter a 'demographic

window' by 2015. This is characterised as a period of great economic possibilities because

of a favourable age structure whereby most of the population will be of working age (15-65

years old). Between 2015 and 2050, the Philippine dependency ratio (portion of non-

working population to total population) is expected to reach as low as 46.5%, coming from

61.4% as of end of 2013. We believe that the favourable demographics will soften the

earnings volatility from the VIP segment and provide earnings stability in the form of mass

gaming revenues.

Figure 22: Age dependency ratio against GDP

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

90.0

100.0

1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Age dependency ratio (%) GDP (P mn)

Source: CEIC

Evident government support of gaming and tourism

The Philippine government continues to support the gaming industry with its increased

focus on tourism. Despite the already strong growth in Philippine tourism seen in the past

few years, the government is still determined to set its sights higher and attain 10 mn

visitors by 2016 through a variety of incentives.

■ Increase number of tourists from China. In order to accomplish this, the Philippines

reformed its policy to lengthen the allowed number of days of stay from 21 to 30 for

visa-free tourists from China. Chinese nationals were also allowed 30 days of visa-free

stay if accompanied by a Philippines-accredited tour group/guide. The cost of a visa

was also reduced and the application process limited to not more than three days in

an effort to increase Chinese visitation.

■ Improve public infrastructure. In 2014, the Philippine government allotted

US$9.1 bn for public infrastructure alone, including roads, airports, water supply and

transportation, to facilitate more convenient travel and visitation within the country. The

major projects include the development of the NAIA Expressway Link and renovation

of NAIA Terminal 3.

The mass segment

expected to grow gradually

and provide earnings

stability in the form of mass

gaming revenues

The Philippine government

has implemented a number

of policies and projects

demonstrating its support for

gaming and tourism

30 September 2014


■ Increase number of flights and air seats. The Philippines recently signed air service

agreements with Australia, Canada, France, Singapore, New Zealand, Myanmar, Italy,

Brazil, Japan, Macau, South Africa and Israel to increase flights to and from these

countries. Under the new air service pact, the Philippines and Macau have more seat

entitlements, up 56% from 4,500 seats to 7,020 seats. Philippine Airlines and Cebu

Pacific aim to increase seat entitlements to Singapore as well.

■ Marketing campaigns. The Department of Tourism's highly publicised promotion

campaign "It's more fun in the Philippines" was rolled out in 2012 and helped attract a

record 4.27 mn visitors that year. To supplement the campaign, the Department of

Tourism recently released four television commercials featuring Manila, Cebu, Davao

and Boracay.

We believe that these favourable government initiatives to support tourism will directly

benefit the Philippine gaming industry and provide it with a competitive advantage over

casinos in Singapore and Malaysia. It should also be noted that in April 2013, the Bureau

of Internal Revenue (BIR) issued a revenue memorandum circular (RMC) stating that the

Philippine Amusement and Gaming Corporation (PAGCOR), its contractees and licensees

are no longer exempt from corporate tax. Rather than breach the mutually agreed upon

provisions of the licence agreements, PAGCOR issued guidelines for a temporary 10%

income tax allocation (ITA) measure whereby the 25% and 15% licence fees were

reduced to 15% and 5%, respectively, inasmuch as 10% of licence fees was allocated for

income tax on gaming. The parties will revert to the original licence fee structure if the BIR

action is permanently restrained, corrected or withdrawn. This temporary measure to

neutralise the burden of additional tax liabilities on gaming operators can be viewed as

further proof of the Philippine government's favourable support of the gaming industry.

30 September 2014


Prefer BLOOM (+21%) over RWM (+15%) We assume coverage on RWM and BLOOM with OUTPERFORM ratings and DCF-based

target prices of P11.4 and P16.0, respectively.

Review of 1H14 results

RWM's 1H14 EBITDA stood at P4.7 bn, which accounts for only 40% of full-year

consensus estimates. This may pose downward earning revisions, which can limit price

appreciation in the near term. On the other hand, BLOOM's 1H14 results came in line with

expectations after analysts raised consensus estimates following strong 1Q14 results. We

see further boosts in 2H14 and in 2015, as synergies form between City of Dreams Manila

and Solaire's Phase 1A expansion, and critical mass starts to build in the area.

Figure 23: RWM vs BLOOM—1H14 EBITDA (P mn) vs 2014E CS and consensus forecasts

4,686 4,474

9,198 9,694

11,698

8,967

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

RWM BLOOM

1H14 CS Consensus


We believe the strong VIP revenue growth that Solaire recorded in 1H14 is on the back of

a credit extension to the junkets. This is reflected in the growth of its accounts receivable,

which appears to be continuously increasing. Based on the historical performance of

Macau casino operators, credit extension tends to yield the most revenue growth in the

first six months and tapers off thereafter. We believe that fresh credit injections, which we

see as a continuing trend for BLOOM, will be able to support its VIP growth momentum in

the near to medium term. On the other hand, RWM's accounts receivable seem to have

peaked in 3Q13 and hence we expect its VIP volume growth to slow down.

30 September 2014


Figure 24: BLOOM—accounts receivable vs estimated VIP revenue (P mn)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

1Q13 2Q13 3Q13 4Q13 1Q14 2Q14


Figure 25: RWM—accounts receivable vs estimated VIP revenue (P mn)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2Q13 3Q13 4Q13 1Q14 2Q14


New operators to gain market share

We expect the new operators to capture most of the projected growth in the industry.

PAGCOR, which has already closed down two of its casinos in the past two years, is not

opposed to the rising share of new operators. In our view, it prioritises being a regulator

and a collector of gaming fees rather than being a casino operator itself. We also expect

Resorts World Manila to lose market share, given its location, albeit on a smaller scale

compared to PAGCOR. In 2013, during Solaire's first year of operations, PAGCOR's GGR

market share fell from 49% to 38%, while RWM's share decreased from 51% to 41%. We

believe that growth will be focused on Entertainment City, at least in the near to medium

term, given the additional gaming capacity to be added there by the end of the year. By

2015E, we believe Solaire will be positioned above RWM in terms of market share. We

see PAGCOR's market share declining to <20% over the next three years.

30 September 2014


Figure 26: Philippine GGR market share by casino operator

50% 51%41%

34%27% 29%

20% 34%

32% 32%

2% 21% 22%50% 49%

38%30%

20% 18%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2011 2012 2013 2014E 2015E 2016E

Resorts World Manila Solaire Others PAGCOR


RWM to see margin pressure

We forecast a deceleration in revenue growth for RWM, as we believe a large portion of

the industry growth will be taken up by the operators inside Entertainment City. We have

observed that in 2013 when Solaire opened, mass revenue growth slowed from 25% to

8% YoY. We believe VIP growth was sustained in 2013 mainly because of aggressive

promotions. RWM's EBITDA margin fell to 22% in 2013 as promotional allowances

increased 50% YoY. In 1H14, VIP revenue growth eventually slowed, as RWM started to

cut costs and Solaire signed up more junkets. With revenue growth decelerating, RWM will

likely return to aggressive promotions, which we can already see in its 2Q14 results.

RWM's EBITDA margin fell from 36% in 1Q14 to 31% in 2Q14. This is despite the new

(10% lower) gaming licence fees, which are effective beginning 2Q14. We believe that due

to increased competition, with City of Dreams opening in 4Q14, this trend will continue and

inevitably result in lower EBITDA margins.

Figure 27: RWM vs BLOOM—Quarterly EBITDA margins

1,978

215

2,611

2,075

794 734

2,141 2,333

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-

500

1,000

1,500

2,000

2,500

3,000

3Q13 4Q13 1Q14 2Q14

RWM EBITDA (P mn) BLOOM EBITDA (P mn)

RWM EBITDA margin BLOOM EBITDA margin


30 September 2014


No near-term catalysts for RWM

RWM has been registering low win rates since 2H13. However, we believe the anticipated

improvement in GGR on the back of normalised win rates will be tempered by a slower

increase in drop volume as we expect a majority of the visitors to favour the Entertainment

City. Moreover, RWM has no new significant expansion of gaming facilities in the near

term—except for the bonus VIP tables, which could potentially lead to added win rate

volatility.

RWM recently announced the acquisition of a 95% stake in Resorts World Bayshore City

Inc. (RWBCI), which holds the rights and obligations to the Resorts World Bayshore

project. RWM subscribed to 3.23 bn shares of RWBC for P16.15 bn, diluting the stake of

the existing shareholders—Genting HK and AGI—to 5%. Some 25% of the subscription

amount was already injected by RWM while the rest will be spread over the next three

years. While this should be positive for RWM in the long term, we have not accounted for

this project in our forecasts as the capex, which will be funded by both debt and equity, is

not yet definite. The project is targeted to begin construction before year-end and be

completed by 4Q18.

BLOOM to benefit from synergies in Entertainment

City

We forecast a VIP win/table/day of US$6,743 for RWM and US$8,440 for Solaire, which is in

line with the running average for 1H14. We see robust 16% and 14% YoY growth in VIP

win/table/day for Solaire in 2015E and 2016E, respectively, partly because of the 65 VIP

tables that will be added in 4Q14. We also believe that Solaire will benefit immensely from

the synergies that will form in Entertainment City. With Solaire's Phase 1A expansion and

with City of Dreams Manila's unique non-gaming facilities, we expect visitation to increase

significantly and critical mass to form within Entertainment City. We expect Solaire to benefit

from its proximity to CoD Manila and to the SM group's largest mall—Mall of Asia. This has a

total gross floor area of 407,000 sq m and attracts a daily average foot traffic of around

200,000 people.

Figure 28: GGR (US$ mn) Figure 29: VIP win/table/day (US$)

628

806

980

643

1,002

1,125

-

200

400

600

800

1,000

1,200

2014E 2015E 2016E


6,743 7,620

8,354 8,440

10,043

11,469

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2014E 2015E 2016E


Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates

30 September 2014


Figure 30: RWM vs BLOOM—win/table/day (P)

2011 2012 2013 2014E 2015E 2016E

Resorts World Manila

VIP 283,991 315,599 348,100 297,491 328,430 360,069

Mass 79,801 92,672 99,762 99,363 104,301 109,005

Slots 14,556 13,731 12,814 12,330 12,858 13,225

Solaire

VIP 209,485 372,365 432,874 494,315

Mass 81,540 99,047 108,841 111,373

Slots 9,944 13,787 15,856 18,234


Figure 31: RWM vs BLOOM—revenue breakdown (P mn)

2011 2012 2013 2014E 2015E 2016E

Resorts World Manila 27,337 30,197 32,506 30,227 37,343 45,415

Gaming 25,428 28,058 30,004 27,714 34,754 42,225

Non-gaming 1,909 2,138 2,502 2,513 2,589 3,190

Solaire 16,266 30,247 46,079 51,788

Gaming 14,774 28,366 43,192 48,479

Non-gaming 1,492 1,881 2,887 3,310


Figure 32: RWM vs BLOOM—revenues and EBITDA (P mn)

2011 2012 2013 2014E 2015E 2016E

RWM

EBITDA 8,579 9,170 6,718 9,198 13,339 16,634

Net revenues 25,929 28,509 29,973 28,268 35,325 42,917

EBITDA margin 33% 32% 22% 33% 38% 39%

Net income 4,817 6,747 2,776 4,178 5,480 7,239

BLOOM

EBITDA 1,065 9,694 14,954 16,873

Net revenues 12,291 23,196 35,763 40,006

EBITDA margin 9% 42% 42% 42%

Net income (1,315) 4,664 6,272 7,759

Note: Other income excluded from EBITDA and net revenues


30 September 2014


Key investment risks Regulatory risks

Revision of PAGCOR policies

PAGCOR states that the adjustment of gaming licence fees from 25% to 10% effective

1 April 2014 was done in order to address the BIR action to remove the exemption of

PAGCOR and its licensees from the 30% corporate tax. Any change in the BIR court ruling,

or other government policies affecting PAGCOR will likely result in a change in its

agreement with the licensees.

Suspension of gaming licence

PAGCOR may unilaterally suspend or terminate the provisional licences due to non-

compliance of the licensees with material provisions, failure to remit monthly licence fees

within 30 days of receipt of notice of default, delay in the construction of more than 50% of

schedule or bankruptcy or insolvency.

Implementation of casino entry fee

In September 2014, House Representative Peter Unabia proposed a bill seeking to

impose a P3,500 entrance fee for all Filipinos visiting local casinos. The congressman has

firmly maintained that if passed into law, the bill will prevent financially inadequate citizens

from entering casinos and gambling. Currently, the PAGCOR charter contains no

requirement of an entry fee for any person seeking to play in casinos.

Market risks

PAGCOR issuance of additional gaming licences

PAGCOR is not legally restricted to issue additional gaming licences. A new operator

within Entertainment City may result in increased competition and/or change the dynamics

among the existing operators.

Competition in attracting foreign junkets

Philippine gaming operators will need to provide more enticing incentives, relative to each

other and to regional competitors, in order to attract junket business.

Operational risks

Execution risks

The launch of City of Dreams Manila is slated for 4Q14. Any delays can negatively impact

our forecasts, as well as the public's perception on management's ability to execute.

Delays in infrastructure projects may temper growth

Infrastructure projects that are intended for ease of access to the Entertainment City are

expected to be operational by mid-2015. Significant delays can temper growth in the

medium term.

Negative perception on safety in the Philippines

Incidents that endanger tourists in the country, such as the 2010 bus hostage crisis that

left eight Hong Kong tourists dead, could discourage travel and hinder growth in gaming

revenues, particularly in the VIP segment.

Relations between China and the Philippines

Disputes between China and the Philippines, such as the territorial dispute over

Scarborough Shoal in 2012, can negatively affect visitor arrivals.

30 September 2014


Asia Pacific / Philippines

Casinos & Gaming

Bloomberry Resorts Corporation (BLOOM.PS / BLOOM PM)

ASSUMING COVERAGE

Well-positioned

■ Assuming coverage with OUTPERFORM. Bloomberry terminated its

management services agreement with Global Gaming Philippines (GGAM)

effective September 2013 and subsequently hired Thomas Arasi as

President and COO. Since then, Solaire's operating performance has

improved significantly, with 1H14 GGR now in line with RWM's. We assume

coverage of BLOOM with an OUTPERFORM rating and a target price of

P16.0, suggesting an upside of 21% from the current price. We expect an

earnings CAGR of 29% over 2014-16E.

■ Critical mass formed by mutualism. We believe City of Dreams (CoD)

Manila and Solaire will mutually benefit from being a short distance from

each other. Critical mass should start to form in Entertainment City as

players normally visit two to three properties per trip as evidenced by the

gambling behaviour in Macau. We expect near-term momentum to be

concentrated in this area as imminent gaming supply in the country, as well

as in the region, will come from the two operators.

■ Phase 1A expansion to open in 4Q14. Bloomberry aims to focus on the

VIP segment and targets to increase its GGR share to 70% from ~50%

currently. However, it also recognises the need for non-gaming facilities in

order to increase visitation and build stable mass gaming revenues. Solaire's

Phase 1A expansion will add a retail area and increase gaming capacity by

65 tables (+22%) and 220 slot machines (+16%).

■ Target price set at P16.0. We discount cash flows up to 2033 and use a 3%

terminal growth rate to arrive at our target price of P16.0. This translates to a

2015E EV/EBITDA of 10.8x. Risks include: unfavourable results on the

GGAM share sale arbitration, intense competition in the Philippine gaming

industry and adverse regulatory changes.

Share price performance

40

60

80

100

120

8

13

18

Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

PHILIPPINE SE COMPOSITE INDEX which closed at 7265.36

on 29/09/14

On 29/09/14 the spot exchange rate was P44.97/US$1

Performance over 1M 3M 12M Absolute (%) 15.5 22.5 27.9 — Relative (%) 12.4 16.1 14.1 —

Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (P mn) 12,290.8 23,196.3 35,762.8 40,006.1 EBITDA (P mn) 1,064.9 9,693.9 14,954.2 16,873.3 EBIT (P mn) -974.3 6,912.8 11,324.6 13,243.8 Net profit (P mn) -1,314.6 4,663.7 6,271.6 7,758.8 EPS (CS adj.) (P) -0.12 0.44 0.59 0.73 Change from previous EPS (%) n.a. -21.2 -17.3 0.0 Consensus EPS (P) n.a. 0.44 0.65 0.78 EPS growth (%) n.m. n.m. 34.5 23.7 P/E (x) -107.0 30.2 22.4 18.1 Dividend yield (%) 0.0 0.0 0.0 0.0 EV/EBITDA (x) 142.9 17.3 10.8 9.1 P/B (x) 8.8 6.8 5.2 4.1 ROE (%) -7.9 25.4 26.3 25.2 Net debt/equity (%) 72.0 130.0 74.8 34.9

Source: Company data, Thomson Reuters, Credit Suisse estimates.

Rating OUTPERFORM* Price (29 Sep 14, P) 13.28 Target price (P) (from 12.60) 16.00¹ Upside/downside (%) 20.5 Mkt cap (P mn) 140,633 (US$3,127 mn) Enterprise value (P mn) 167,573 Number of shares (mn) 10,589.80 Free float (%) 28.1 52-week price range 13.80–8.30 ADTO - 6M (US$ mn) 2.1

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

Research Analysts

Alvin Arogo

63 2 858 7716

[email protected]

30 September 2014


Bloomberry Resorts Corporation BLOOM.PS / BLOOM PM Price (29 Sep 14): P13.28, Rating: OUTPERFORM, Target Price: P16.00, Analyst: Alvin Arogo

Target price scenario

Scenario TP %Up/Dwn Assumptions Upside 19.80 49.10 10.1% discount rate Central Case 16.00 20.48 11.1% discount rate Downside 13.10 (1.36) 12.1% discount rate

Key earnings drivers 12/13A 12/14E 12/15E 12/16E

Philippine VIP GGR 72,361 82,403 130,425 148,631 Philippine mass-market GGR

0.20 0.34 0.33 0.33 BLOOM's market share — — — — — — — — — — — —

Income statement (P mn) 12/13A 12/14E 12/15E 12/16E

Sales revenue 12,291 23,196 35,763 40,006 Cost of goods sold 3,951 4,577 5,289 5,872 SG&A 7,275 8,925 15,520 17,261 Other operating exp./(inc.) — — — — EBITDA 1,065 9,694 14,954 16,873 Depreciation & amortisation 2,039 2,781 3,630 3,630 EBIT (974) 6,913 11,325 13,244 Net interest expense/(inc.) 317.4 525.5 517.8 394.7 Non-operating inc./(exp.) 132.0 — — — Associates/JV — — — — Recurring PBT (1,160) 6,387 10,807 12,849 Exceptionals/extraordinaries — — — — Taxes 155 1,724 4,535 5,090 Profit after tax (1,315) 4,664 6,272 7,759 Other after tax income — — — — Minority interests — — — — Preferred dividends — — — — Reported net profit (1,315) 4,664 6,272 7,759 Analyst adjustments — — — — Net profit (Credit Suisse) (1,315) 4,664 6,272 7,759

Cash flow (P mn) 12/13A 12/14E 12/15E 12/16E

EBIT (974) 6,913 11,325 13,244 Net interest (317.4) (525.5) (517.8) (394.7) Tax paid (155) (1,724) (4,535) (5,090) Working capital 532 (166) (3,609) (1,514) Other cash & non-cash items 1,938 2,803 3,630 3,630 Operating cash flow 1,023 7,301 6,292 9,875 Capex (14,301) (22,060) (1,800) (1,800) Free cash flow to the firm (13,278) (14,759) 4,492 8,075 Disposals of fixed assets — — — — Acquisitions — — — — Divestments — — — — Associate investments — — — — Other investment/(outflows) 1,984 (656) 2,262 — Investing cash flow (12,317) (22,716) 462 (1,800) Equity raised — — — — Dividends paid — — — — Net borrowings 9,456 13,700 (1,653) (3,695) Other financing cash flow 92.1 15.4 — — Financing cash flow 9,549 13,715 (1,653) (3,695) Total cash flow (1,745) (1,700) 5,101 4,380 Adjustments — — — — Net change in cash (1,745) (1,700) 5,101 4,380

Balance sheet (P mn) 12/13A 12/14E 12/15E 12/16E

Cash & cash equivalents 6,092 4,392 9,493 13,873 Current receivables 2,515 4,088 7,709 9,096 Inventories 190.3 162.0 264.8 333.6 Other current assets 261.7 490.1 375.9 433.0 Current assets 9,059 9,132 17,842 23,736 Property, plant & equip. 23,244 42,522 40,693 38,863 Investments — — — — Intangibles — — — — Other non-current assets 8,044 8,700 6,438 6,438 Total assets 40,347 60,355 64,974 69,037 Accounts payable — — — — Short-term debt 1,019 1,719 1,719 1,719 Current provisions — — — — Other current liabilities 6,566 8,173 8,173 8,173 Current liabilities 7,585 9,893 9,893 9,893 Long-term debt 16,613 29,613 27,960 24,265 Non-current provisions 68.2 65.8 65.8 65.8 Other non-current liab. 47.4 65.2 65.2 65.2 Total liabilities 24,314 39,637 37,984 34,289 Shareholders' equity 16,022 20,686 26,957 34,716 Minority interests 0.000 0.000 0.000 0.000 Total liabilities & equity 40,347 60,355 64,974 69,037

Per share data 12/13A 12/14E 12/15E 12/16E

Shares (wtd avg.) (mn) 10,590 10,590 10,590 10,590 EPS (Credit Suisse) (P) (0.12) 0.44 0.59 0.73 DPS (P) — — — — BVPS (P) 1.51 1.95 2.55 3.28 Operating CFPS (P) 0.10 0.69 0.59 0.93

Key ratios and valuation 12/13A 12/14E 12/15E 12/16E

Growth(%) Sales revenue — 88.7 54.2 11.9 EBIT (19) 810 64 17 Net profit (91) 455 34 24 EPS (91) 455 34 24 Margins (%) EBITDA 8.7 41.8 41.8 42.2 EBIT (7.9) 29.8 31.7 33.1 Pre-tax profit (9.4) 27.5 30.2 32.1 Net profit (10.7) 20.1 17.5 19.4 Valuation metrics (x) P/E (107) 30 22 18 P/B 8.78 6.80 5.22 4.05 Dividend yield (%) — — — — P/CF 137 19 22 14 EV/sales 12.4 7.2 4.5 3.8 EV/EBITDA 143 17 11 9 EV/EBIT (156) 24 14 12 ROE analysis (%) ROE (7.9) 25.4 26.3 25.2 ROIC (4.9) 13.4 13.9 17.0 Asset turnover (x) 0.30 0.38 0.55 0.58 Interest burden (x) 1.19 0.92 0.95 0.97 Tax burden (x) 1.13 0.73 0.58 0.60 Financial leverage (x) 2.52 2.91 2.41 1.99 Credit ratios Net debt/equity (%) 72 130 75 35 Net debt/EBITDA (x) 10.8 2.8 1.3 0.7 Interest cover (x) (3.1) 13.2 21.9 33.6


0

10

20

30

40

50

60

Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

12MF P/E multiple

0

1

2

3

4

5

6

7

8

9

Jul-12 Jan-13 Jul-13 Jan-14 Jul-14

12MF P/B multiple

Source: IBES

30 September 2014


Figure 33: Solaire—key operating assumptions

2014E 2015E 2016E

VIP tables

Turnover (P mn) 445,965 840,963 992,337

GGR (P mn) 14,271 26,070 29,770

Hold rate (%) 3.20% 3.10% 3.00%

No. of tables 105 165 165

GGR/table/day (P) 372,365 432,874 494,315

Mass tables

Drop (P mn) 15,666 18,016 19,817

GGR (P mn) 7,050 7,747 7,927

Hold rate (%) 45.00% 43.00% 40.00%

No. of tables 195 195 195

GGR/table/day (P) 99,047 108,841 111,373

Slot machines

Handle (P mn) 100,648 133,934 154,024

GGR (P mn) 7,045 9,375 10,782

Hold rate (%) 7.00% 7.00% 7.00%

No. of machines 1,400 1,620 1,620

GGR/machine/day (P) 13,787 15,856 18,234


Figure 34: BLOOM—DCF model

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023-33E

WACC 11.1%

Terminal growth rate 3.0%

Asset beta 1.5

Cost of debt 5.5%

Cost of equity 13.5%

Gearing 25.0%

After-tax EBITDA 8,819 10,419 11,783 10,712 12,686 13,965 15,451 17,775 15,453 400,831

Changes in WC (166) (3,609) (1,514) (1,807) (2,215) (1,989) (2,284) (2,099) (2,352) (53,459)

Capital expenditure (22,060) (1,800) (1,800) (1,800) (1,800) (1,800) (1,800) (1,800) (1,800) (14,200)

FCF (13,407) 5,010 8,469 7,104 8,671 10,176 11,367 13,876 11,301 333,172

PV of FCF (12,720) 4,278 6,510 4,915 5,400 5,704 5,734 6,301 4,619 67,917

NPV of FCF 98,658 55%

NPV of terminal value 80,041 45%

Enterprise value 178,699

Less: Net debt (2013) 9,269

Equity value 169,430

Value per share 16.0


Figure 35: BLOOM—valuation sensitivity on 2015 market growth assumptions

Mass market growth

13% 14% 15% 16% 17%

VIP

gro

wth

10% 13.8 13.9 14.0 14.1 14.2

15% 14.8 14.9 15.0 15.1 15.2

20% 15.8 15.9 16.0 16.1 16.2

25% 16.8 17.0 17.1 17.2 17.3

30% 17.9 18.1 18.2 18.3 18.4


30 September 2014


Appendix I: Solaire Resort & Casino Project description

Figure 36: Solaire Phase 1

Source: Company data

Total land area: 8.3 hectares

Commencement of operations: 16 March 2013

Total cost: US$1.2 bn (Phase 1 and 1A)

Facilities

■ 488 hotel rooms, suites, and bayside villas.

■ Aggregate gaming floor area of 18,500 sq m containing approximately 1,400 slot

machines, 295 gaming tables and 88 ETGs.

■ 15 specialty restaurants and food & beverage outlets.

■ Grand ballroom with 1,000 seats.

■ Spa, fitness centre, and bayview promenade.

Expansion plans

Figure 37: Solaire Phase 1A (Opening date: 4Q14)

Gaming Non-gaming

220 slots 312-room all-suite hotel rooms

65 VIP gaming tables Retail promenade with 40 outlets

1,700-seat performance theatre

Additional F&B offerings

Nightclub, KTV and whisky bar

Spa, gym and salon

3,100 parking spaces


Figure 38: Solaire Phase 2

Gaming Non-gaming

300 gaming tables Additional three hotels with 1,500 rooms

1,300 electronic gaming machines Event area for 15,000 people

100,000 sq m of exhibition space

35 F&B outlets


30 September 2014


Company history

Bloomberry Resorts Corporation was incorporated in the Philippines and registered with

the Securities and Exchange Commission (SEC) on 3 May 1999. It was primarily engaged

in the manufacture and distribution of consumer communication and electronic equipment

within the Subic Bay Freeport Zone until 2003.

On 9 September 2011, Sureste and Bloomberry Resorts and Hotels, Inc. (BRHI) entered

into a Management Services Agreement (MSA) with Global Gaming Philippines, LLC

(GGAM) for technical assistance on all aspects of planning, design, layout and

construction of the Solaire project. Under the MSA, GGAM was granted the option to

purchase up to 921,184,056 shares of Bloomberry’s outstanding shares from PMHI.

GGAM exercised option to purchase under the MSA on 21 December 2012 and now owns

8.7% of outstanding capital stock in Bloomberry. Effective 12 September 2013, the MSA

with GGAM was terminated allegedly due to material breach by GGAM. GGAM however

alleged that it was BRHI and Sureste that violated the MSA. Both parties currently await

constitution of a three-member arbitration tribunal under the United Nations Commission

International Trade Law (UNCITRAL).

Enrique Razon Jr. indirectly owns 62% of Bloomberry through Prime Metroline Holdings, Inc.

and Sureste Properties, Inc. GGAM owns 8.7% of Bloomberry via Quasar Holdings, Inc.

Senior management

■ Enrique K. Razon, Jr. Chairman and Chief Executive Officer, age 54. Also the

President of Sureste, Chairman and President of International Container Terminal

Services, Inc. (ICTSI), and Chairman, President and Director of a number of ICTSI

subsidiaries and affiliates. He also serves as Chairman and President of Prime

Metroline, Chairman of the Board of Monte Oro Resources and Energy, Inc. and an

independent director of CLSA Exchange Capital Inc. He is a member of the American

Management Association, Management Association of the Philippines, World

Economic Forum and US Philippines Society.

■ Jose Eduardo J. Alarilla. Vice Chairman, age 62. Also President of BRHI, Lakeland

Village Holdings, Inc., Devoncourt Estates Inc., Eiffel House Inc., Manila Holdings and

Management, Inc. and Alpha Allied Holdings Ltd. He is also the President and CEO of

Mega Subic Terminal Services, Inc., Chairman of Mega Equipment International

Corp., as well as director of Monte Oro Resources and Energy, Inc. and International

Cleanvironment Systems Inc. He graduated with a Bachelor of Science degree in

Mechanical Engineering from De La Salle University and a Master’s degree in

Business Management from the Asian Institute of Management.

■ Thomas Arasi. Director, President and Chief Operating Officer from 11 October

2013 to present, age 56. Served as President and Chief Executive Officer of Marina

Bay Sands Pte Ltd. He graduated from Cornell University with a Bachelor of Arts

degree in Hotel and Restaurant Administration.

■ Estella Tuason-Occena. Chief Financial Officer and Treasurer, age 44. Chief

Financial Officer and Treasurer of BRHI as well as Director and Treasurer of Prime

Metroline. She serves as Executive Officer of ICTSI, Chief Financial Officer of Monte

Oro Resources and Energy, Inc., Director and Chief Financial Officer of International

Cleanvironment Systems, Inc., Treasurer of Sureste, Sureste Realty Corporation,

Lakeland Village Holdings Inc., Devoncourt Estates Inc., Achillion Holdings, Inc.,

Bloomberry Cultural Foundation, Inc. and Razon Industries, Inc. She graduated with

distinction from St. Scholastica’s College with a Bachelor's Degree in Commerce and

has an MBA from De La Salle University.

30 September 2014


■ Laurence Upton. Senior Vice President for International Marketing from 3 March

2014 to present, age 44. Served as Senior Vice President, VIP International

Marketing in Crown Ltd, Melbourne and was also connected with Star City Pty Ltd in a

number of senior management roles. He also serviced VVIP clients, the world’s largest

gaming customers including international celebrities.

■ Cyrus Sherafat. Senior Vice President for Casino Marketing from 17 March 2014

to present, age 31. Served as Vice President of Casino Marketing in Marina Bay

Sands in Singapore and brings with him ten years of experience in the gaming

industry through various marketing roles. He graduated from Cornell University’s

School of Hotel Administration.

■ Lorraine Koo Man Loo. Senior Vice President for VIP Services, age 37. She was

previously the Senior Manager then Assistant Vice President for Casino Customer

Service of the Galaxy Entertainment Group as well as Senior Executive Host at Marina

Bay Sands in Singapore. She is a graduate of Edith Cowan University in Australia with

a Bachelor of Arts degree in Communications Management.

■ Silverio Benny J. Tan. Corporate Secretary, age 57. He is a Managing Partner of

the law firm Picazo Buyco Tan Fider & Santos as well as Director and Corporate

Secretary of Prime Metroline, Bravo International Port Holdings Inc., Alpha

International Port Holdings Inc., Eiffel House Inc., Cycland Corp., OSA Industries

Philippines Inc. and Negros Perfect Circles Food Corp. Also a director of Celestial

Corporation, Skywide Assets Ltd., Monte Oro Resources and Energy Inc. Minerals

(SL) Ltd., and Dressline Holdings Inc. and its subsidiaries and affiliates. Also the

Corporate Secretary of Mapfre Insular Insurance Corporation, Cebu International

Container Terminal Inc., Sureste, BRHI, Lakeland Village Holdings Inc., and

Devoncourt Estates Inc. and Assistant Corporate Secretary of ICTSI, ICTSI Ltd., and

Monte Oro Resources and Energy, Inc. He graduated with a Bachelor of Arts Major

degree in Political Science, cum laude, from the University of the Philippines College

Iloilo and a Bachelor of Laws degree, cum laude, from the University of the Philippines

College of Law. Atty. Tan placed third in the 1982 Philippine Bar Exams.

■ Christine P. Base. Compliance Officer, age 43. Currently a Securities, Corporate

and Tax Lawyer at Pacis and Reyes, Attorneys and Managing Director of Legis

Forum, Inc. She is also Director and Corporate Secretary of Anchor Land Holdings,

Inc. and Corporate Secretary of Asiasec Equities, Inc., Araneta Properties, Inc. and

several private corporations. She graduated with a Bachelor of Science degree in

Commerce, major in Accounting from De La Salle University and is a Certified Public

Accountant. She earned her degree of Juris Doctor from Ateneo de Manila University

School of Law and is also a member of the Philippine Bar.

■ Christian R. Gonzalez. Director, age 38. Also a Director of Sureste and Prime

Metroline. He is Head of the Asia Pacific Region of International Container Terminal

Services, Inc., as well as Trustee and Auditor of ICTSI Foundation, Inc. He earned his

degree in Business Administration from Pepperdine University in California and his

Bilingual Masters in Business Administration from Instituto de Estudios Superiores de

la Empresa (IESE) Business School in Barcelona, Spain.

■ Donato C. Almeda. Director, age 59. He was President and CEO of Waterfront

Philippines Inc. as well as President of Waterfront Cebu City Hotel, Waterfront Mactan

Hotel, Fort Ilocandia Hotel and Insular Hotel in Davao. He was also the Managing

Director of Waterfront Promotions Ltd. He graduated with a degree in Engineering

from De La Salle University.

30 September 2014


■ Carlos C. Ejercito. Independent Director, age 68. Also an Independent Director of

Monte Oro Resources and Energy, Inc. He serves as Chairman and President of

Northern Access Mining Corporation, Forum Cebu Coal Corporation and

Morganhouse Holdings Inc. He is also a Governor of the Management Association of

the Philippines and a member of the Philippine Chamber of Commerce. He earned his

Bachelor’s degree in Business Administration, cum laude, from the University of the

East and is an MBA candidate of the Ateneo Graduate School of Business. He also

attended the Program for Management Development of Harvard Business School.

■ Jon Ramon Aboitiz. Independent Director, age 65. Also an Independent Director of

ICTSI. He is the Chairman of Aboitiz & Co., Inc and Aboitiz Equity Ventures, Inc. He

currently holds a number of varied positions in the Aboitiz Group such as President of

the Aboitiz Foundation, Vice Chairman of Unionbank of the Philippines and Chairman

of the Executive Committee, Risk Management Committee, Compensation and

Remuneration Committee, Nominations Committee, and Corporate Governance

Committee of Unionbank. He also serves as a member of the Board of Advisors of the

Coca-Cola Export Foundation, Trustee of the Philippine Business for Social Progress,

and Trustee of Santa Clara University.

30 September 2014


Asia Pacific / Philippines

Casinos & Gaming

Travellers International Hotel Group, Inc. (RWM.PS / RWM PM)

ASSUMING COVERAGE

Growth prospects intact

■ Assuming coverage with an OUTPERFORM rating. We assume coverage

of Travellers International Hotel Group (RWM) with an OUTPERFORM

rating and a P11.38 target price, indicating potential upside of 15%. We

forecast an earnings CAGR of 32% for 2014-16, taking into account the

improvement in win rates and its Phase 2 and 3 expansions.

■ Margin pressure from deceleration of revenue growth and intensifying

competition. We believe RWM will continue to be aggressive in its

promotions as most of the industry growth will be taken up by Solaire and

CoD Manila. RWM's near-term expansion involves mostly non-gaming

facilities. While this gives RWM a sizeable gaming inventory, as it has the

most number of hotel rooms, we believe its deployment could be delayed, as

critical mass could start to form in Entertainment City.

■ Resorts World Bayshore to begin construction before year-end.

Travellers recently announced the acquisition of a 95% stake in Resorts

World Bayshore City Inc. (RWBCI), which holds the rights and obligations to

the Resorts World Bayshore project. We have not accounted for this project

in our forecasts as the capex, which will be funded by both debt and equity,

is not yet definite. The project is targeted to begin construction before year-

end and completion by 4Q18.

■ Target price of P11.38. We discount cash flows up to 2033, and assume a

3% terminal growth rate to arrive at our target price of P11.38. Despite a lack

of catalysts, and margin pressure, we assume coverage of RWM with an

OUTPERFORM rating, as the company has substantial gaming expansion

plans post 2017. Key risks include intense competition in the Philippine

gaming industry and adverse regulatory changes.

Share price performance

60

80

100

120

6

8

10

12

14

Nov-13 Mar-14 Jul-14

Price (LHS) Rebased Rel (RHS)

The price relative chart measures performance against the

PHILIPPINE SE COMPOSITE INDEX which closed at 7265.36

on 29/09/14

On 29/09/14 the spot exchange rate was P44.97/US$1

Performance over 1M 3M 12M Absolute (%) 22.2 11.2 — — Relative (%) 19.2 4.8 — —

Financial and valuation metrics

Year 12/13A 12/14E 12/15E 12/16E Revenue (P mn) 29,972.5 28,267.7 35,324.7 42,917.1 EBITDA (P mn) 6,717.7 9,197.8 13,338.7 16,634.1 EBIT (P mn) 4,617.2 7,126.2 10,650.6 13,189.1 Net profit (P mn) 2,775.7 4,177.7 5,480.3 7,238.7 EPS (CS adj.) (P) 0.18 0.27 0.35 0.46 Change from previous EPS (%) n.a. -61.0 -59.3 0.0 Consensus EPS (P) n.a. 0.41 0.54 0.55 EPS growth (%) -63.0 50.5 31.2 32.1 P/E (x) 56.2 37.3 28.5 21.5 Dividend yield (%) 0.0 0.83 0.54 0.70 EV/EBITDA (x) 22.0 16.6 11.4 8.9 P/B (x) 4.7 4.3 3.8 3.3 ROE (%) 10.2 12.0 14.2 16.5 Net debt/equity (%) Net cash Net cash Net cash Net cash


Rating OUTPERFORM Price (29 Sep 14, P) 9.90 Target price (P) (from 13.50) 11.38¹ Upside/downside (%) 14.9 Mkt cap (P mn) 155,983 (US$3,469 mn) Enterprise value (P mn) 152,535 Number of shares (mn) 15,755.87 Free float (%) 10.0 52-week price range 11.34–7.98 ADTO - 6M (US$ mn) 3.4

*Stock ratings are relative to the coverage universe in each

analyst's or each team's respective sector.

¹Target price is for 12 months.

[V] = Stock considered volatile (see Disclosure Appendix).

Research Analysts

Alvin Arogo

63 2 858 7716

[email protected]

30 September 2014


Travellers International Hotel Group RWM.PS / RWM PM Price (29 Sep 14): P9.90, Rating:: OUTPERFORM [V], Target Price: P11.38, Analyst: Alvin Arogo

Target price scenario

Scenario TP %Up/Dwn Assumptions Upside 12.00 21.21 10.1% discount rate Central Case 11.38 14.95 11.1% discount rate Downside 9.40 (5.05) 12.1% discount rate

Key earnings drivers 12/13A 12/14E 12/15E 12/16E

VIP drop volume (P mn) 72,361 82,403 130,425 148,631 Mass market drop volume (P mn)

— — — — Win rate — — — — 0.41 0.34 0.27 0.28 0.03 0.02 0.02 0.03

Income statement (P mn) 12/13A 12/14E 12/15E 12/16E

Sales revenue 29,972 28,268 35,325 42,917 Cost of goods sold 11,373 8,833 9,583 11,265 SG&A 12,757 11,211 13,432 16,114 Other operating exp./(inc.) (876) (975) (1,030) (1,096) EBITDA 6,718 9,198 13,339 16,634 Depreciation & amortisation 2,100 2,072 2,688 3,445 EBIT 4,617 7,126 10,651 13,189 Net interest expense/(inc.) 1,811 1,428 1,521 1,517 Non-operating inc./(exp.) — — — — Associates/JV — — — — Recurring PBT 2,806 5,698 9,130 11,672 Exceptionals/extraordinaries — — — — Taxes 67 1,521 3,649 4,434 Profit after tax 2,740 4,178 5,480 7,239 Other after tax income 36.2 — — — Minority interests — — — — Preferred dividends — — — — Reported net profit 2,776 4,178 5,480 7,239 Analyst adjustments — — — — Net profit (Credit Suisse) 2,776 4,178 5,480 7,239

Cash flow (P mn) 12/13A 12/14E 12/15E 12/16E

EBIT 4,617 7,126 10,651 13,189 Net interest (1,811) (1,428) (1,521) (1,517) Tax paid (66) (1,526) (3,649) (4,434) Working capital 1,332 (1,176) 97 104 Other cash & non-cash items 3,432 772 2,688 3,445 Operating cash flow 7,504 3,768 8,266 10,788 Capex (5,489) (7,200) (7,200) (5,400) Free cash flow to the firm 2,016 (3,432) 1,066 5,388 Disposals of fixed assets — — — — Acquisitions — — — — Divestments — — — — Associate investments — — — — Other investment/(outflows) (40.8) 62.9 (28.3) (2.1) Investing cash flow (5,529) (7,137) (7,228) (5,402) Equity raised 16,855 — — — Dividends paid (6,141) (1,299) (836) (1,096) Net borrowings (1,588) — — — Other financing cash flow (663.4) 8.4 9.2 10.1 Financing cash flow 8,463 (1,291) (826) (1,086) Total cash flow 10,438 (4,660) 211 4,300 Adjustments (1,576) — — — Net change in cash 8,862 (4,660) 211 4,300

Balance sheet (P mn) 12/13A 12/14E 12/15E 12/16E

Cash & cash equivalents 25,776 21,115 21,326 25,626 Current receivables 3,043 2,851 3,664 4,808 Inventories 207.2 208.1 214.4 264.2 Other current assets 445.7 443.9 454.5 448.0 Current assets 29,472 24,619 25,659 31,146 Property, plant & equip. 30,872 36,000 40,512 42,467 Investments 206.1 195.6 199.5 200.4 Intangibles — — — — Other non-current assets 676.4 624.0 648.4 649.6 Total assets 61,226 61,438 67,019 74,463 Accounts payable 7,313 6,013 6,905 8,214 Short-term debt 1,603 1,603 1,603 1,603 Current provisions 1,305 — — — Other current liabilities 162.0 91.8 126.9 109.3 Current liabilities 10,383 7,708 8,635 9,926 Long-term debt 16,064 16,064 16,064 16,064 Non-current provisions — — — — Other non-current liab. 1,351 1,360 1,369 1,379 Total liabilities 27,798 25,132 26,068 27,369 Shareholders' equity 33,381 36,260 40,905 47,047 Minority interests — — — — Total liabilities & equity 61,226 61,438 67,019 74,463

Per share data 12/13A 12/14E 12/15E 12/16E

Shares (wtd avg.) (mn) 15,756 15,756 15,756 15,756 EPS (Credit Suisse) (P) 0.18 0.27 0.35 0.46 DPS (P) — 0.08 0.05 0.07 BVPS (P) 2.12 2.30 2.60 2.99 Operating CFPS (P) 0.48 0.24 0.52 0.68

Key ratios and valuation 12/13A 12/14E 12/15E 12/16E

Growth(%) Sales revenue 5.1 (5.7) 25.0 21.5 EBIT (38.1) 54.3 49.5 23.8 Net profit (58.9) 50.5 31.2 32.1 EPS (63.0) 50.5 31.2 32.1 Margins (%) EBITDA 22.4 32.5 37.8 38.8 EBIT 15.4 25.2 30.2 30.7 Pre-tax profit 9.4 20.2 25.8 27.2 Net profit 9.3 14.8 15.5 16.9 Valuation metrics (x) P/E 56.2 37.3 28.5 21.5 P/B 4.67 4.30 3.81 3.32 Dividend yield (%) — 0.83 0.54 0.70 P/CF 20.8 41.4 18.9 14.5 EV/sales 4.93 5.40 4.31 3.45 EV/EBITDA 22.0 16.6 11.4 8.9 EV/EBIT 32.0 21.4 14.3 11.2 ROE analysis (%) ROE 10.2 12.0 14.2 16.5 ROIC 18.4 18.0 18.2 21.4 Asset turnover (x) 0.49 0.46 0.53 0.58 Interest burden (x) 0.61 0.80 0.86 0.88 Tax burden (x) 0.98 0.73 0.60 0.62 Financial leverage (x) 1.83 1.69 1.64 1.58 Credit ratios Net debt/equity (%) (24.3) (9.5) (8.9) (16.9) Net debt/EBITDA (x) (1.21) (0.37) (0.27) (0.48) Interest cover (x) 2.55 4.99 7.00 8.70


0

5

10

15

20

25

Dec-13 Feb-14 Apr-14 Jun-14 Aug-14

12MF P/E multiple

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Dec-13 Feb-14 Apr-14 Jun-14 Aug-14

12MF P/B multiple

Source: IBES

30 September 2014


Figure 39: Resorts World Manila—key operating assumptions

2012 2013 2014E 2015E 2016E

VIP tables

Turnover (P mn) 456,935 581,527 592,278 665,318 740,025

GGR (P mn) 13,708 15,120 13,030 15,968 19,241

Hold rate (%) 3.00% 2.60% 2.20% 2.40% 2.60%

No. of tables 119 119 120 133 146

GGR/table/day (P) 315,599 348,100 297,491 328,430 360,069

Mass tables

Drop (P mn) 21,689 23,529 24,470 28,037 31,768

GGR (P mn) 5,683 6,117 6,093 7,150 8,260

Hold rate (%) 26.20% 26.00% 24.90% 25.50% 26.00%

No. of tables 168 168 168 188 208

GGR/table/day (P) 92,672 99,762 99,363 104,301 109,005

Slot machines

Handle (P mn) 108,207 110,669 113,871 151,247 189,720

GGR (P mn) 8,440 8,522 8,313 11,344 14,419

Hold rate (%) 7.80% 7.70% 7.30% 7.50% 7.60%

No. of machines 1,684 1,822 1,847 2,417 2,987

GGR/machine/day (P) 13,731 12,814 12,330 12,858 13,225


Figure 40: RWM—DCF model

2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023-33E

WACC 11.1%

Terminal growth rate 3.0%

Asset beta 1.5

Cost of Debt 5.5%

Cost of Equity 13.5%

Gearing 25.0%

After-tax EBITDA 7,677 9,690 12,200 16,008 18,026 19,181 22,941 25,514 27,684 313,057

Changes in WC (1,176) 97 104 236 (1,157) (2,464) 1,570 1,273 1,340 10,102

Capital expenditure (7,200) (7,200) (5,400) (5,400) (2,500) (2,500) (2,500) (2,500) (2,500) (27,500)

FCF (699) 2,587 6,904 10,844 14,368 14,218 22,011 24,287 26,524 295,658

PV of FCF (663) 2,209 5,307 7,502 8,947 7,969 11,104 11,029 10,841 69,209

NPV of FCF 133,454 78%

NPV of terminal val. 37,738 22%

Enterprise value 171,193

Add: Net cash 8,109

Equity value 179,301

Value per share 11.4


Figure 41: RWM—valuation sensitivity on 2015 market growth assumptions

Mass market growth

1.5% 2.0% 2.5% 3.0% 3.5%

VIP

gro

wth

-1.5% 11.0 11.0 11.1 11.1 11.2

0.0% 11.2 11.2 11.2 11.3 11.3

1.2% 11.3 11.3 11.4 11.4 11.5

2.5% 11.4 11.5 11.5 11.6 11.6

5.0% 11.7 11.8 11.8 11.9 11.9


30 September 2014


Appendix II: Resorts World Manila Project description

Figure 42: Resorts World Manila Phase 1

Source: Company

Total land area: 11.5 hectares

Commencement of operations: August 2009

Total cost: US$1.5 bn (Phase 1)

Facilities

■ Marriott Hotel, Maxims and Remington Hotel with an aggregate of 1,226 rooms

(including 172 suites).

■ 13,167 sq m of gaming space containing 119 VIP tables, 168 mass-market tables,

1,822 slot machines and 210 ETGs.

■ 60 retail outlets, 48 restaurants and bars, a four-screen cinema, and a 1,500-seat

Newport Performing Arts Theatre.

■ Nightclubs run by third parties such as Republiq Club and the Cabana Club.

■ "Gamezoo" family entertainment centre.

■ Bus-and-shuttle programme.

30 September 2014


Expansion plans

Figure 43: Phase 2 expansion (opening late 2015)

Marriott Grand Ballroom Marriott West Wing

11,000 sq m in ground area Ten-storeyed annex to Marriott Hotel Manila

126,000 sq m in built-up space 3,000 sq m in ground area

Seating capacity of up to 2,000 31,000 sq m of built-up space

Four independent function rooms 227 rooms

Two boardrooms 29 junior suites

Six VIP breakaway rooms one presidential suite

17 meeting rooms VIP all day dining facility

Two wedding chapels Chinese restaurant

A number of F&B outlets Bar and lounge

1,532 underground parking spaces Pool, gym and spa facility

Footbridge to Marriott West Wing and Marriott Hotel Manila Golf terrace with direct access to Villamor golf course

127 additional parking spaces


Figure 44: Phase 3 expansion (opening 2Q17)

Gaming Non-gaming

17,955 sq m of gaming space Hilton Manila with 352 rooms

Up to 285 gaming tables Sheraton Hotel Manila with 350 rooms

Up to 1,710 slots Maxims Hotel with additional 175 suites

Up to 1,710 ETGs Footbridge connecting new hotels and Maxims extension

1,750 sq m of retail space

1,500 parking spaces


Figure 45: Resorts World Bayshore (opening 4Q18)

Gaming Non-gaming

~221 gaming tables 1,440 rooms (at least three hotels)

~1,323 slots Theatre

Retail shops

Possible "themed area"

Source: The Innovation Group

Company history

Travellers International Hotel Group, Inc. was incorporated in the Philippines on 17

December 2003 primarily to engage in the business of hotels, restaurants, leisure parks,

entertainment centres and other related businesses, including holding investments done in

and operating casinos and other gaming activities. The company was incorporated as a

wholly-owned subsidiary of AGI, which is a leading conglomerate in the Philippines listed

in the PSE.

On 2 June 2008, Travellers International Hotel Group, Inc. received one of the first

licences issued by the Philippine Amusement and Gaming Corporation (PAGCOR) to

construct and operate leisure and gaming facilities. The company thus commenced

business operations and the development of Resorts World Manila. GHK, an affiliate of the

Genting Group, acquired 50% interest in the company in July 2008, pursuant to their joint

venture agreement with AGI.

In August 2009, Resorts World Manila opened its casino and gaming facilities as well as

certain restaurants and shops, including the Newport Mall, the Newport Performing Arts

Theatre and the four-screen cinema. By 2012, full operations of Newport Mall commenced

with a total of 88 retail outlets. Also in 2012, the company began construction of several

structures for its Phase 2 and Phase 3 expansion plans.

30 September 2014


On 18 March 2013, the company entered into a Deed of Accession with Resorts World

Bayshore, Inc. (RWBCI) which led PAGCOR to recognise RWBCI as a co-licensee and

co-holder of the Joint Venture Agreement and provisional licence. Accordingly, on 28 June

2013, PAGCOR issued an Amended Certificate of Affiliation and Provisional Licence to

certify this. On 10 June 2013, the parties entered a Cooperation Agreement which

designated the parties’ rights, interests and obligations; this designated RWBCI to Site A

or Entertainment City and Travellers to Site B or Newport City.

Senior management

■ Chua Ming Huat. Chairman, Chief Executive Officer, and Director since 2008,

age 51. Mr Huat is currently President of GHK and a Director of Norwegian Cruise

Line Holdings Ltd. He has also worked as chief operating officer of Genting Berhad

and held a number of key management positions in international securities companies

in Malaysia, Singapore, and Hong Kong. Mr Huat holds a Bachelor of Arts degree in

Political Science and Economics from the Carleton University in Ottawa, Canada.

■ Kingson U Sian. President and Director since 2008, age 53. Mr Sian is also

President and Director of AGI as well as Director and President of Forbes Town

Properties & Holdings, Inc. and Chairman and President of Prestige Hotels & Resorts,

Inc. He is also a member and executive director of Megaworld Corporation. He

graduated with a Bachelor of Science degree in Business Economics from the

University of the Philippines and a Master's in Business Administration in Finance and

Business Policy from the University of Chicago.

■ Bernard Than Boon Teong.* Chief Financial Officer, age 43. Prior to his

appointment as Chief Financial Officer, he held the position of vice president for

treasury. He has over 18 years of working experience in external audit, hospitality

industry and casino/gaming/cruise line industries and was responsible for introducing

the Computerized Tracking Program for the calculation of VIP players, level of gaming,

and calculation of commission. Mr Teong graduated from Monash University in

Melbourne, Australia with a business degree.

■ Stephen James Reilly.* Chief Operating Officer since 1 January 2013 and

Executive Vice President since November 2011, age 48. Mr Reilly has also served

as country head (the Philippines) and senior vice president of GHK Group and was

responsible for the regional operating headquarters and GHK Group support services.

He had ten years of working experience in the United Kingdom where he was

responsible for the security and surveillance of gaming operations at the Regency and

Barracuda Casinos.

■ Ma. Georgina A Alvarez. Chief Legal Officer and Assistant Corporate Secretary,

age 43. Prior to joining the company, she was the senior vice president for Legal and

Corporate Services of Global-Estates Resort. She earned a Bachelor of Science

degree with a Commerce Major in Economics and Marketing from Saint Louis

University and graduated second in rank from San Beda College of Law. Ms Alvarez

also received with distinction her Masters in Management major in industrial relations

at the University of the Philippines.

■ Patricia May T Siy. Chief Corporate Planning Officer, age 53. Her last position held

and function was segment head (executive vice president) for commercial and retail

banking with oversight of commercial lending units, branch banking, transaction

banking, consumer lending and marketing and communications. Ms Siy has also

worked for Rustan’s Supercenter as its chief financial officer, as well as in various

positions in Security Bank Corporation and Standard Chartered Bank. She graduated

from De La Salle University with a Bachelor of Science degree in industrial

management engineering, minoring in chemical engineering.

30 September 2014


■ Andrew L Tan. Director, age 65. He is also the current Chairman and CEO of AGI,

Global Estate-Resorts, Inc. as well as Chairman of Empire East Land Holdings, Inc.,

Suntrust Properties, Inc., Emperador Distillers, Inc., Alliance Global Brands, Inc. and

Megaworld Foundation, Inc. Mr Tan is also Vice Chairman and Treasurer of Golden

Arches Realty Corporation. He graduated from the University of the East with a

Bachelor of Science degree in Business Administration (magna cum laude), and was

also awarded the Degree of Doctor of Humanities, honoris causa, from the University

of the East.

■ Tan Sri Lim Kok Thay. Director since 2009, age 62. He currently spearheads the

Genting Group as Chairman and Chief Executive Officer and has expanded the

company’s presence globally. Mr Thay's leadership has resulted in a number of global

leisure brands such as Resorts World Genting in Malaysia, the Burswood International

Resort & Casino in Perth and the Adelaide Casino in South Australia, Lucayan Beach

Resort & Casino in the Bahamas and the Subic Bay Resort & Casino in the

Philippines. He pioneered the Asian cruise industry with Star Cruises and has

expanded its focus from sea to land-based operations.

■ Jose Alvaro D Rubio. Director since 2009, age 61. He was senior vice president at

Philippine National Bank and has 35 years of experience in the banking industry,

including international banking. He was also a former member and director of the Bank

Administration Institute of the Philippines. He holds a Bachelor of Science in Business

Administration in Accounting degree (cum laude) from the University of the East.

■ Laurito E Serrano. Director since 8 June 2013, age 53. Mr Serrano is also a Director

of Philippine Veterans Bank and Atlas Consolidated Mining Corporation as well as

Managing Director of CibaCapital Philippines, Inc. He was also involved in a number of

projects where he acted as senior advisor like the project-management of a

securitisation program involving several shareholders in the Metro Rail Transit Group. Mr

Serrano was also a part of SGV in the Audit and Business Advisory Group and, later, a

partner. He graduated cum laude from the Polytechnic University of the Philippines with

a Bachelor of Science degree in commerce. Mr Serrano earned his Master’s degree in

Business Administration from Harvard Business School in Boston. He is a Certified

Public Accountant and ranked twelfth in the CPA licensure examination.

■ Enrique Soriano III. Director since 30 October 2013, age 46. Enrique Soriano III is

the Chairman of the Marketing Cluster of the Ateneo Graduate School of Business, as

well as a family business coach, book author, professor of global marketing, and

program director for real estate. He graduated from the University of the Philippines

with a BA in history and earned his Master's degree in Business Administration from

De La Salle University. He also took Doctorate Units at the UP National College of

Public Administration and studied a course in executive education from the National

University of Singapore Business School.

■ M Hakan Dagtas.* Chief Gaming Operations Officer, age 45. He has more than 24

years of experience in the hospitality industry and casino/gaming/cruise line industries.

Mr Dagtas began his career as a dealer in Hilton Casino before working in a variety of

casinos and gaming companies including Ramada Mersin Casino, Swiss Hotel

Bosphorus, Cinar Casino and Net Holding as well as serving in various positions with

Star Cruises Inc. He is a graduate from the School of Tourism and Hotel Management

of Cukurova University.

■ Stanley Chee.* Chief Surveillance and Systems Officer, age 53. He has over 27

years of casino experience coupled with a broad understanding of the Asian gaming

environment as he worked at Star Cruises as Director of Surveillance prior to joining

the company. Mr Chee is responsible for the installation of a state-of-the-art digital

CCTV system with more than 2,500 cameras and the set-up of a surveillance

monitoring room similar to those in Las Vegas.

30 September 2014


■ Ravi D Ganesan. * Chief Gaming Training and Development Officer, age 47. He

joined Resorts World Genting and was later appointed Assistant Manager TRD of

Casino de Genting, Resorts World. Mr Ganesan also served as Director of Casino

Administration and Training in Star Cruises. He has worked in the

casino/gaming/cruise line industries for approximately 25 years.

■ Armeen Basister Gomez. Chief Safety and Security Officer, age 38. He has more

than ten years of management and leadership experience in asset protection, fraud

control, safety administration, investigation and related functions and is a Board

Certified Protection Professional of the American Society for Industrial Security

International as well as a Licensed Security Consultant licensed by SAGSD, Philippine

National Police. Mr Gomez took a graduate course in Occupational Health and Safety

from the University of the Philippines and earned a Master's degree in Business

Administration from the International Academy of Management and Economics.

■ Randy Reyes. Chief Technology Officer. He has been with the company's IT group

for the last five years.

■ Allan Martin L Paz. Chief Integrated Marketing Officer, age 42. He has previously

worked as Client Service Director for DDB Worldwide, as well as Senior Brand

Director for Leo Burnett/Arc Worldwide in Shanghai. Prior to that, Mr Paz was senior

account director for 141 Worldwide in Vietnam and group account supervisor for Foote

Cone and Belding Advertising. He has also held various positions in Ace Saatchi &

Saatchi Advertising and has approximately 20 years of experience in integrated

communication, advertising and marketing. He graduated from the University of Santo

Tomas with a Bachelor of Arts degree in Communication Arts with an emphasis on

Advertising/Marketing.

■ W. Scott Sibley.** Chief Hotel Operations Officer, age 52. He started his career at

Marriott Hotel group and, since then, has gained experience in opening new hotels

and working in different cities such as Florida, California, Hawaii, Dubai, Vietnam,

Singapore, Cebu and Canada. Mr Sibley served as general manager of Marriott Hotel

Manila and has been a General Manager in Dubai, UAE; Toronto, Canada; Seoul,

Korea; and Guam, the US for the past 14 years. He has 28 years of working

experience in the hospitality and hotel industry.

■ Venetia T Sarmiento. Chief Human Resources Officer, age 52. She has worked in

human resource management for more than 15 years in various industries such as

directory publishing, advertising, manufacturing, insurance and BPO. Ms Sarmiento held

senior management positions in the field of business development, operations and

human resource management in the business process outsourcing industry for the last

15 years and was part of the pilot team that launched the offshore call centre operations

of Teleperformance Philippines. Her training in Six Sigma, ISO 9001, Project

Management and COPC has qualified her to lead process development, process

improvement and quality management initiatives. Ms Sarmiento is a graduate of the

University of Santo Tomas where she earned her degree in psychology before obtaining

an MBA degree in Human Resource Management at the Lyceum of the Philippines.

■ Eric Yaw Chee Cheow.*** Chief Business Development Officer, age 44. Previously

Senior Director for Business Development, Mr Cheow has approximately 20 years of

working experience in the casino industry, specifically in casino surveillance and casino

marketing operations. Prior to joining the company, he worked for a casino gaming

company in Subic Bay with a focus on the international gaming promoter business. He

has also headed the CCTV Department of Hyatt Hotel and Casino, Manila.

■ Jeffrey Rodrigo Lim Evora. Senior Director for Gaming Events, age 44. He has

nearly 20 years of experience working in the US, local, regional, Native America,

riverboat, and mega-resort casino operations. Prior to joining the company, Mr Evora

30 September 2014


was an auditor with Hyatt Regency—Maui, a casino analyst at Flamingo Hilton Las

Vegas, and a marketing manager of Lady Luck Gaming Corporation. He was also

director of database marketing of Boyd Gaming Corporation and Horseshoe Gaming

Holding Corporation as well as central division director of marketing, director of casino

marketing and director of Asian Communications at Harrah’s Entertainment. Mr Evora

also worked as executive director of Marketing at Seneca Niagara Casino and Hotel.

He graduated from the University of Phoenix with a business degree.

■ Mary Ann E. Moreno. Senior Director for Gaming Treasury, age 45. She worked

with the Gaming Treasury team of Star Cruises and has almost 20 years of working

experience in the casino/gaming industry. Ms Moreno earned her Bachelor of Science

degree with a major in Computer Data Processing Management from the Polytechnic

University of the Philippines.

■ Carlito B. Banaag. Director for Audit & Risk Management since July 2010, age

49. He has worked as operational risk management officer for China Banking

Corporation as well as internal audit head for Philippine Deposit Insurance Corporation

and risk management/compliance officer for several private banks. Mr Banaag is a

Certified Public Accountant and earned his bachelor’s degree in Accountancy from

Polytechnic University of the Philippines.

* Engaged as consultants pursuant to agreement between Star Cruises Hong Kong

Management Services (Philippines), Inc. and the company

** Engaged under Grand Venture Management Services, Inc.

*** Engaged under Bright Leisure Management, Inc.

Deed of accession and cooperation agreement

The company was initially granted the rights by PAGCOR to operate casinos and engage

in gaming activities in two sites—Site A (in Entertainment City, where Bayshore City is set

to rise) and Site B (in Newport City, where RWM is located).

On 18 March 2013, however, the company entered into a deed of accession with Resorts

World Bayshore City Inc. (RWBCI), which was incorporated by AGI and GHK to

independently develop Site A. The deed of accession was consented to by PAGCOR

under the following conditions:

■ RWBCI received the same rights, title, interest and obligations of the company under

the Provisional Licence.

■ RWBCI would be recognised and included as co-licensee and co-holder of the

Provisional Licence.

■ AGI and GHK would be jointly and severally liable in cases of material breach or

default of the Provisional Licence by RWBCI or the company.

■ AGI and GHK would collectively hold and maintain equity interest of no less than 51%

in RWBCI and the company.

* Note however that AGI and GHK are not parties to the deed of accession and there is no

assurance that PAGCOR will have any legal recourse against them.

On 10 June 2013, the company thus entered into a Cooperation Agreement with RWBCI

to formally designate their rights and obligations with respect to Sites A and B. The

Cooperation Agreement was mutually consented to under the following terms:

■ The company would have all rights and obligations under the Provisional Licence to

Site B while RWBCI would have all rights and obligations under the Provisional

Licence to Site A.

30 September 2014


■ Each party is to indemnify the other for any and all loss suffered in connection with a

breach of the Provisional Licence.

■ A breach by RWBCI or the company of their obligations could result in the suspension

or revocation of their Provisional Licence.

Option to acquire rights to Resorts World Bayshore

Furthermore, an addendum to the Cooperation Agreement was included on 16 October

2013, stating that the company had the option to reacquire all rights and obligations to Site

A from RWBCI, subject to the following requirements:

■ Option to acquire rights must be exercised no earlier than 1 January 2016 and no later

than one month prior to the opening date of Resorts World Bayshore or at a date

mutually agreed upon by the parties.

■ The company has the right of first offer and right of first refusal should the rights and

obligations to Site A be offered to a third party.

■ Terms and conditions for transfer of the rights and obligations to Site A will be

negotiated between parties on an arm's length basis, subject to fairness tests relevant

under Philippine law and reports of two international independent financial advisers.

On 24 September 2014, Travellers announced the purchase of a 95% stake in RWBCI for

a total consideration of P16.15 bn. Travellers has paid the minimum (25%) of P4.0375 bn

and will pay the balance over three years as and when needed. The capital expenditure

for the project, which will be funded by both debt and equity, has yet to be defined.

30 September 2014


Appendix III: PAGCOR licensees PAGCOR

The Philippine Amusement and Gaming Corporation (PAGCOR) is a 100% government-

owned and controlled corporation that is under the direct supervision of the Office of the

President of the Republic of the Philippines. It was originally created in 1977 and is governed

by rules under Presidential Decree No. 1869, otherwise known as the “PAGCOR Charter”. In

June 2007, Republic Act 9487 was passed, which amended PAGCOR’s Term of Franchise

for another 25 years until 11 July 2033 (renewable for another 25 years by an act of

Congress) and also authorised PAGCOR to issue licences to private hotel casino-operators.

PAGCOR also owns and operates 11 casinos in the Philippines’ key cities through the

Casino Filipino brand.

Figure 46: PAGCOR-owned casinos

Region City

Metro Manila Casino Filipino – Hyatt

Casino Filipino – Pavilion

Other areas of Luzon Casino Filipino – Angeles

Casino Filipino – Laoag

Casino Filipino – Mimosa

Casino Filipino – Olongapo

Casino Filipino – Tagaytay

Visayas and Mindanao Casino Filipino – Bacolod

Casino Filipino – Cebu

Casino Filipino – Davao

Casino Filipino – Mactan


PAGCOR shut down operations at its Heritage Hotel and Airport Casino Filipino branches

in 2013 and 2014, respectively.

Entertainment City

The Entertainment City is a 100-hectare development located on a reclaimed area along

Manila Bay, which PAGCOR envisions to become the gaming and entertainment complex

of the Philippines. In 2008, PAGCOR issued four provisional gaming licences to select

corporations for the development, establishment and operations of integrated casino, hotel

and entertainment resorts in the Entertainment City. The recipients are as follows:

■ Travellers International Hotel Group. Travellers, a 50-50 joint venture between

Alliance Global and Genting Hong Kong, operates Resorts World Manila, which

opened in August 2009. Resorts World Manila is the first integrated resort to open in

the Philippines and is located in Newport City, across from NAIA Terminal 3. It also

has plans to develop another integrated resort on a 30.5-ha lot in the Entertainment

City to be named Resorts World Bayshore.

■ Bloomberry Resorts Corporation. Bloomberry is majority-owned by port magnate

Enrique K. Razon Jr. It operates Solaire Manila, which stands on an 8.3-ha property

and was the first integrated resort to open in the Entertainment City. Phase 1 opened

on March 2013 while Phase 1A is slated to open on October 2014.

■ Tiger Resorts Leisure & Entertainment. Tiger Resorts (not listed), owned by

Japan's Universal Entertainment Group, plans to construct a US$2 bn Manila Bay

Resorts complex on a 45-ha lot in the Entertainment City. The project is facing delays

due to the absence of a domestic partner, which is needed to comply with the 40%

foreign equity limit set by the Philippine constitution.

30 September 2014


Figure 47: The four Entertainment City licensees

Travellers Bloomberry Resorts Melco Crown/Belle Corp Universal Entertainment

Major shareholders JV between AGI and Genting

HK

Mr Enrique Razon Jr. Partnership between SM

Group and MCP

Mr. Kazuo Okada

Location Newport City and Manila Bay Manila Bay Manila Bay Manila Bay

Size 11.5 hectares (Newport City)

and 30.5 hectares (Manila Bay)

16 hectares 6.2 hectares ~45 hectares

Project costs

(US$ bn)

1.5 (Newport City)

1.1 (Manila Bay)

1.2 1.3 2

Gaming space 13,167 sq m 18,500 sq m 20,100 sq m ~28,000 sq m

Timeline Aug-09: Opening of RWM in

Newport

Mar-13: Opening of

Solaire Phase 1

4Q14: Opening of City of

Dreams Manila Phases 1 and

2

2015: Targeted year of

completion of Manila Bay

Resorts

End-2014: Opening of first half

of RWM Phase 2 (Marriott

Grand ballroom)

Nov-14: Expected date

of completion of Solaire

Phase 1A

End-2015: Opening of 2nd half of

RWM Phase 2 (Marriott West

Wing)

2Q17: RWM Phase 3 (Hilton

Manila, Sheraton Manila, Maxims

Hotel expansion and new casino

space)

Note Recently announced

plans for Phase 2

Note pending issues

regarding bribery allegations

and land ownership

requirement


Figure 48: Current and planned capacity of Philippine gaming operators

Current Gaming tables Slot machines Hotel rooms

Bloomberry 295 1,400 488

Melco Crown/Belle Corp 0 0 0

Universal Entertainment 0 0 0

Travellers 287 1,822 1,226

Planned expansion (including current) Gaming tables Slot machines Hotel rooms

Bloomberry (4Q14) 360 1,620 800

Melco Crown/Belle Corp (4Q14) 375 1,699 950

Universal Entertainment (3Q15) 500 3,000 2,000

Travellers (4Q15-4Q17) 1,065 5,572 3,806


30 September 2014


Figure 49: Map of the Entertainment City

Source: PAGCOR, Google Maps

Terms of the provisional licence

■ Licensees are required to invest a minimum of US$1.0 bn and spend 65% or

US$650 mn by the commencement of operations. The said investment shall consist of

the value of land used for development and construction costs.

■ The maximum number of gaming tables, slot machines and electronic table games

(ETGs) is subject to the following conditions:

o One gaming table per four standard hotel rooms (rooms of 65 sq m or less).

o One bonus gaming table for foreign junket players per 3.2 standard room

equivalents (derived by the aggregate floor area of all rooms in excess of 32,000

sq m divided by 50).

o Three slot machines per two standard hotel rooms.

o Three ETGs per two standard hotel rooms.

■ Licensees are required to maintain an escrow account into which all funds for

development of the approved project must be deposited and all funds withdrawn only for

such development. Within 15 banking days of issuance, Licensees must deposit

US$100 mn in the escrow account and maintain a balance of US$50 mn until project

completion.

30 September 2014


■ Licensees are required to submit a bank guarantee, letter of credit or surety bond in the

amount of US$100 mn to guarantee project completion. Performance assurance will be

subject to forfeiture in case of delay in construction that exceeds 50.0% of schedule.

■ Licensees must also secure a surety bond of US$100 mn seven days prior to the

commencement of the project to ensure punctual remittance and payment of all

licence fees.

■ The licences require that 95% of employees be hired in the Philippines and 40% of its

gaming personnel be hired from PAGCOR.

■ Licensees are required to maintain a 70:30 debt to equity ratio.

■ Projects must have a minimum gross floor area of 250,000 sq m with the gaming

component not to exceed 7.5% of it and a minimum gross floor area of 20,000 sq m

for retail outlets.

■ Each project must have a minimum availability of 800 hotel rooms with each room

having an average gross floor area of 40 sq m.

■ The maximum number of bonus gaming tables for foreign junket players is also limited

to one bonus gaming for every 3.2 standard room equivalents.

■ Licensees are also required to invest at least $20.0 mn in a thematic attraction.

Revised gaming licence fees effective April 2014

The PAGCOR Charter (PD No. 1869) exempts PAGCOR from tax of any kind or form or

charge, apart from a 5.0% franchise tax of gross earnings from its operations. The

exemption also extends to corporations that PAGCOR has any kind of contractual

relationship with in connection to the operation of casinos authorised to be conducted

under the PAGCOR Charter.

The amendment to the National Internal Revenue Code in 2011 excludes PAGCOR from

the list of government-owned and controlled corporations. Consequently, on 23 April 2013,

the Bureau of Internal Revenue (BIR) issued a memorandum circular stating that

PAGCOR and its licenced casino operators are subject to the 30% income tax instead of

the 5% franchise tax on gross gaming revenues. PAGCOR has thus entered an

agreement with the licensees to adjust the fees by 10% of gross gaming revenues, subject

to a true-up mechanism obliging the licensees to remit to PAGCOR any savings from new

(lowered) licence fees over the actual income tax paid on the gaming revenues.

Licensees are required to remit the following licence fees (inclusive of franchise tax) to

PAGCOR on a monthly basis:

a) 5% (from 15% previously) of VIP gaming revenues

b) 15% (from 25% previously) of mass gaming revenues

The lowered licence fees are effective from 1 April 2014. Licensees are also required to

remit 2% of gross gaming revenues from non-junket tables on a monthly basis to a

foundation devoted to the restoration of Philippine cultural heritage.

30 September 2014


Companies Mentioned (Price as of 29-Sep-2014)

AECOM Technology Corp. (ACM.N, $34.55) Belle Corporation (BEL.PS, P5.23) Bloomberry Resorts Corporation (BLOOM.PS, P13.28, OUTPERFORM, TP P16.0) Cathay Pacific (0293.HK, HK$14.38) Delta Air Lines, Inc. (DAL.N, $36.52) Galaxy Entertainment Group (0027.HK, HK$46.35) Genting Berhad (GENT.KL, RM9.34) Genting Malaysia Bhd (GENM.KL, RM4.17) Genting Singapore (GENS.SI, S$1.14) LRWC (LR.PS, P9.4) MGM China (2282.HK, HK$23.0) Macau Legend Development Limited (1680.HK, HK$3.97) Melco International (0200.HK, HK$18.18) NagaCorp Limited (3918.HK, HK$5.58) SJM (0880.HK, HK$15.34) SM Investments Corp (SM.PS, P804.0) San Miguel Corporation (SMC.PS, P78.0) Sands China (1928.HK, HK$41.5) Singapore Airlines (SIAL.SI, S$9.95) Travellers International Hotel Group, Inc. (RWM.PS, P9.9, OUTPERFORM[V], TP P11.38) Universal Ent (6425.T, ¥1,847) Wynn Macau (1128.HK, HK$25.35) Wynn Resorts (WYNN.OQ, $184.5)

Disclosure Appendix

Important Global Disclosures

Patricia Palanca, Alvin Arogo and Kenneth Fong each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.

3-Year Price and Rating History for Bloomberry Resorts Corporation (BLOOM.PS)

BLOOM.PS Closing Price Target Price

Date (P) (P) Rating

27-Feb-13 14.40 17.50 O *

01-Aug-13 11.84 15.50

05-Nov-13 9.70 12.60

15-Jan-14 8.98 R

12-Feb-14 8.48 12.60 O

15-May-14 12.00 12.60 *

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

REST RICT ED

3-Year Price and Rating History for Travellers International Hotel Group, Inc. (RWM.PS)

RWM.PS Closing Price Target Price

Date (P) (P) Rating

06-Dec-13 10.72 13.50 O *

15-May-14 9.68 13.50 *

* Asterisk signifies initiation or assumption of coverage.

O U T PERFO RM

The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities

30 September 2014


As of December 10, 2012 Analysts’ stock rating are defined as follows:

Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.

Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.

Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.

*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the le ss attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well a s European ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non -Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark.

Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.

Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.

Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:

Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favorable over the next 12 months.

Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.

Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.

*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.

Credit Suisse's distribution of stock ratings (and banking clients) is:

Global Ratings Distribution

Rating Versus universe (%) Of which banking clients (%)

Outperform/Buy* 44% (55% banking clients)

Neutral/Hold* 39% (50% banking clients)

Underperform/Sell* 14% (43% banking clients)

Restricted 3%

*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.

Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.

Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html

Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.

Price Target: (12 months) for Bloomberry Resorts Corporation (BLOOM.PS)

Method: Our P16.0 target price for Bloomberry Resorts Corporation is based on discounted cash flow. Our WACC assumption is 11.1% and terminal growth rate 3%.

Risk: Risks to our P16.0 target price for Bloomberry Resorts Corporation include a deviation of win/hold rates from the long-term mean and macroeconomic uncertainties beyond the control of the company.

Price Target: (12 months) for Travellers International Hotel Group, Inc. (RWM.PS)

Method: Our P11.38 target price for Travellers International Hotel Group, Inc is based on a discounted cash flow (DCF) valuation. Our WACC assumption is 11.1% and terminal growth rate 3%.

30 September 2014


Risk: Key risks include: (1) an intensifying competitive environment which could result in slowing growth and declining market share; (2) the possibility of regional political tensions and other negative events that could have an adverse impact on property visitation by both locals and foreigners; and (3) changes in regulations which could have a negative impact on casino operations.

Please refer to the firm's disclosure website at https://rave.credit-suisse.com/disclosures for the definitions of abbreviations typically used in the target price method and risk sections.

See the Companies Mentioned section for full company names

The subject company (RWM.PS, 2282.HK, 1928.HK, 1128.HK, 0027.HK, 3918.HK, GENS.SI, BEL.PS, WYNN.OQ) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.

Credit Suisse provided investment banking services to the subject company (RWM.PS, 1928.HK, 0027.HK) within the past 12 months.

Credit Suisse has managed or co-managed a public offering of securities for the subject company (RWM.PS) within the past 12 months.

Credit Suisse has received investment banking related compensation from the subject company (RWM.PS, 1928.HK, 0027.HK) within the past 12 months

Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (RWM.PS, 2282.HK, 1928.HK, 1128.HK, 0027.HK, 3918.HK, GENS.SI, ACM.N, BEL.PS, WYNN.OQ, SIAL.SI, 0293.HK) within the next 3 months.

As of the date of this report, Credit Suisse makes a market in the following subject companies (ACM.N, WYNN.OQ, DAL.N).

Credit Suisse may have interest in (GENM.KL, GENT.KL)

As of the end of the preceding month, Credit Suisse beneficially own 1% or more of a class of common equity securities of (1680.HK).

Credit Suisse has a material conflict of interest with the subject company (0293.HK) . Jack So, a Senior Advisor of Credit Suisse, is an Independent Non-Executive Director of Cathay Pacific Airways Limited.

For other important disclosures concerning companies featured in this report, including price charts, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

Important Regional Disclosures

Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.

The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (BLOOM.PS, RWM.PS, 2282.HK, 1928.HK, 1128.HK, 0027.HK, 0880.HK, 0200.HK, 1680.HK, 3918.HK, GENM.KL, GENS.SI, GENT.KL, ACM.N, BEL.PS, WYNN.OQ, DAL.N, SIAL.SI, 0293.HK) within the past 12 months

Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.

Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.

For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.

Credit Suisse has acted as lead manager or syndicate member in a public offering of securities for the subject company (RWM.PS, 1680.HK, DAL.N, SIAL.SI) within the past 3 years.

As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.

Principal is not guaranteed in the case of equities because equity prices are variable.

Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.

To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Credit Suisse (Hong Kong) Limited .................................................................................................................................................... Kenneth Fong

Credit Suisse Securities (Philippines) Inc. ................................................................................................................ Patricia Palanca ; Alvin Arogo

For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at https://rave.credit-suisse.com/disclosures or call +1 (877) 291-2683.

30 September 2014


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