港股-酒店、休闲与博彩业-澳门第二季困境：保守达成共识-2017.8.16-Macau：2Q wrap-Consensus for 2H17 too conservative-DeutscheBank

gMacauConsumerHotels / Leisure / GamingIndustry UpdateAsiaChinaHong KongIndustryMacauDate16 August 2017Deutsche BankMarkets Research2Q wrap - Consensus for 2H17 tooconservativeGGR in 2H is usually 10% higher than in 1HQTD, Macau stocks have underperformed MSCI HK by 10ppt as 2Q results mostlymissed expectations. Of the 5 companies reported, only Wynn delivered both GGR& EBITDA qoq growth. On 30 Aug, we think Galaxy will be the next one to deliverboth GGR & EBITDA qoq growth. Recently, local checks told us that more smalljunkets are expanding footprints (Fig 4). e.g. Galaxy Macau just opened a VIP roomfor David junket in August. Historically, 2H is the high season with GGR typically10% above that in 1H. But consensus seems to be too conservative, forecasting2H17 EBITDA to be merely 1% above 1H17. We think Wynn and Galaxy have thestrongest consensus upgrade potential (Fig 20). Our 2H17F EBITDA for Wynn &Galaxy is 12% above consensus. Top pick Wynn.2Q17 wrap: Wynn the biggest beneficiary in this Macau recoveryFive of the 6 Macau gaming operators had reported 2Q results. Key takeaways:(1) In the 2Q low season, Macau GGR slipped 1% qoq as VIP (roll +4% qoq)did not grow enough to offset the seasonal softness in mass (Mass GGR -4%qoq). (2) Cotai continued to gain share, esp in the mass market. (3) Competitionsremained largely disciplined - Promotional allowances (comps) rose from 10% ofMass GGR in 1H16 to 11% in 2H16 after Wynn & Sands openings, but remainedlargely flattish in 1H17. That said, Cotai casino comps are noticeably higher thanPeninsula (11% vs 9% of Mass GGR), which may become a problem when moreCotai casinos open. Thankfully, other cost items such as junket commissions andlabour costs had remained stable (Figure 24).2H17 outlook: GGR growth slows, but not as much as the market fearsFigure 1: 2H17 GGR growthslowdown may not be as bad asfeared-15% -Jan-Feb 16 Mar--May--Jul-Aug-Sep-Oct-Nov-Dec-Jan-Feb 17 Mar--May--Jul-Aug-Sep-Oct-Nov-Dec-DBe Stock price implied DBe GGR growth to stay strong at 17% yoy for the rest of 2017 Stocks priced in GGR growth to sharply slow to 12% yoy Source: Deutsche Bank forecast, Government data, FactsetConsensus is expecting a sharp slowdown in GGR momentum from 29% yoy inJuly to 12% yoy in Aug-Dec. While we agree that GGR growth will slow giventougher comps, we think it will only slow to 17% yoy in Aug-Dec. We're morebullish than the Street because we’ve learnt from junkets that China's Tier-3cities are minting new VIPs as the "Shanty Town Reimbursement Plan" has beenpropping up property prices in Tier-3 cities. Recall that Macau's VIP GGR is mostlycorrelated to Tier-3 city property prices (75% correlation Figure 6) , and not toTier-1 city property prices (Figure 5).Valuation now more reasonable after pullback; key risksWe value Macau stocks on SOTP with target multiples on 2017e EV/EBITDA.Downside risks: a sharp slowdown in GGR momentum, a change in investorpreference from momentum stocks to value stocks and regulat