MACAUGAMING：AREMARKABLESTARTTORAISEVIPGROWTHFORECASTTO8.5%YOY0125.ppt

,Investment Focus,January 25,2013,Macau Gaming,RESEARCH,Ziying XIASFC CE Ref:AVUHaofei CHENSFC CE Ref:AJD,A Remarkable Start to 2013Raise VIP Growth Forecast to 8.5%YoY,Investment positivesOver the past half year,Macau gaming stocks grew by an average of 62%(Galaxy+79%)vs.the Heng Seng Indexs+20%,reflecting the gradual recovery of Macau GGR growth.We believe the Macau gaming sector is currently trading at arelatively high valuation of 12.3x 2013e EV/EBITDA,however we continue to recommend overweight on the sector,given:Upgrade VIP growth forecast from 5.5%to 8.5%YoY:According to official DICJ data,VIP GGR was MOP54.8bn(+2.9%YoY VIP recovery proves to be unsustainable.Please read carefully the important disclosures at the end of this report,CICC Research:January 25,2013,2012 Results preview:Largely in line with consensus,Given the favorable shift in VIP/mass market product mix,we expect most gaming operators to enjoy margin,expansion in 4Q12,lifting earnings.Factoring in realized 4Q12 GGR,our new forecasts for gaming operators 2012 resultsare largely in line with consensus,with only Galaxy and Sands China expected to mildly beat forecasts(+3%and+2%).,Galaxy:4Q12e results expected to be 3%above consensus,Largely thanks to the favorable win rate Galaxy Macau delivered in December(3.85%at our estimates)and improved VIProlling volume overall,Galaxy recorded a GGR of MOP14,396mn(+2.9%QoQ)in 4Q12 beating our previous estimate ofMOP13,783mn by 4.4%.After factoring in the actual 4Q12 GGR delivered and expected continued margin expansion due toVIP/mass product mix shift,we now expect Galaxy EBITDA to grow to HK$2,686mn(+21.5%YoY&+2.3%QoQ)in4Q12e.Thus,Galaxy expects to deliver EBITDA of HK$9,991mn(+73.8%YoY)for FY12e,3%above the market consensusof HK$9,744mn.,Sands China:4Q12e results expected to be 2%above consensus,In 4Q12,Sands China recorded a GGR of US$2,087mn(+47.4%YoY&+16.1%QoQ)representing a 20.6%market share(+1.4ppt QoQ),which is attributable to the ramping up of Sands Cotai Central.After factoring in actual 4Q12 GGR delivered,we now expect Sands China to report EBITDA of US$552mn(+28.3%YoY&+13.7%QoQ)in 4Q12e.Sands China expectsto deliver EBITDA of US$1,911mn(+21.3%YoY)at end FY12e,gently beating consensus by 2%.,SJM:4Q12e results expected to be in line with consensus,In 4Q12,SJM recorded a GGR of MOP21,467mn(+13.4%YoY&+13.6%QoQ),a 27.4%market share(+1.3ppt QoQ),largely attributable to its addition of 40 tables to Grand Lisboa.However,we believe SJM continued to face margin pressurein 4Q12 given the increased commissions paid to large junkets,which had stronger bargaining power due to their increasedcontributions to SJMs VIP rolling volume.Thus,we now expect SJM to deliver 4Q12e EBITDA of HK$2,000mn(+12.3%YoY&+5.7%QoQ),in line with consensus.Moreover,we reasonably expect SJM to declare a final dividend ofHK$0.75/sh on its reporting date of February 27,2013,assuming the total dividend payout ratio is 75%(SJM alreadydeclared an interim dividend of HK$0.1/sh with its 2Q12 results last August).A further increase in dividend payout ratio isvery likely this time,given SJM is now cash rich providing further upside on the stock.,MGM China:4Q12e results expected to be in line with consensus,Expanded VIP table offerings located on level 2(opened in end-September,2012),MGM China recorded a GGR ofMOP7,662mn(HK$7,440mn)in 4Q12,a 9.5%market share,down just 0.2ppt QoQ despite facing severe competition fromits Cotai peers.4Q12e and FY12 EBITDA are expected to be HK$1,276mn(flat YoY)and HK$5,370mn(+8.8%YoY)in linewith consensus.Moreover,we expect MGM China to continue to deliver a high dividend yield of 6%(assuming a payoutratio of 75%)in 2013e,backed by its strong balance sheet.,Wynn Macau:4Q12e results expected to be 3%below consensus,Facing increased competition,Wynn Macau only delivered GGR of MOP8,217mn(-13.3%YoY it also expects to declare a dividend of at leastHK$1.2/sh(6%dividend yield)to fund its parentco Wynn Resorts dividend policy(deferred to March 2013e from lastNovember).,Please read carefully the important disclosures at the end of this report,2,CICC Research:January 25,2013Figure 1:2012 results preview,HK$mnGalaxySands China(US$mn)SJMMGM ChinaWynn Macau,4Q12 EBITDA2,6865522,0001,2761,930,YoY%21.5%28.3%12.3%-0.3%-6.0%,2012 EBITDA9,9911,9117,7035,3707,745,YoY%73.8%21.3%11.3%8.8%-2.6%,Consensus9,7441,8757,6735,4327,974,Difference%3%2%0%-1%-3%,Source:CICC ResearchFigure 2:Revised earnings,New forecasts,Old forecasts,Difference,Reasons for earnings revisions for 2013e,HK$mn,2012E,2013E,2014E,2012E,2013E,2014E,2012E,2013E,2014E,Galaxy,Revenue,56,599,62,654,68,940,55,995,60,537,65,900,1.1%,3.5%,4.6%,Raise 2013e VIP growth forecast to 8.5%YoY,EBITDANet profit,9,9917,358,11,7618,930,13,74910,370,9,7507,128,11,0028,196,12,5569,429,2.5%3.2%,6.9%9.0%,9.5%from 5.5%which will benefit Galaxy mostly given10.0%its large exposure to VIP,Sands China,Revenue(US$mn)EBITDA(US$mn)Net profit(US$mn),6,4471,9111,208,8,8102,7102,108,10,0833,1762,526,6,5051,8501,146,8,7962,6101,997,10,0693,0572,385,-0.9%3.3%5.4%,0.2%3.8%5.5%,0.1%3.9%5.9%,Margin improvement at Sands Cotai Centralprogressed faster than expected,SJM,RevenueEBITDANet profit,79,9527,7036,308,88,1058,6107,268,95,3689,3197,952,80,0467,7826,403,89,2248,5937,235,94,5809,2327,850,-0.1%-1.0%-1.5%,-1.3%0.2%0.4%,0.8%0.9%1.3%,MGM China(Initiated on 9 Jan 2013),RevenueEBITDANet profit,21,7625,3704,660,23,3105,6424,336,25,7536,3264,983,n.a.n.a.n.a.,n.a.n.a.n.a.,n.a.n.a.n.a.,n.a.n.a.n.a.,n.a.n.a.n.a.,n.a.n.a.n.a.,Wynn Macau,RevenueEBITDANet profit,28,5127,7456,542,29,2668,3557,371,32,1949,2908,614,29,1007,8566,619,32,1008,6837,822,34,9249,6189,034,-2.0%-1.4%-1.2%,-8.8%-3.8%-5.8%,-7.8%-3.4%-4.7%,Market share declined faster than expected in4Q12 and expects to continue in 2013e,Source:CICC ResearchSector re-rating to reflect the earlier recovery of VIP segmentAs early as mid-November we recommended investors accumulate positions to enjoy the potential upside from a VIP marketrecovery in 2013e(Positioning for Mid-Long Term,published November 19,2012);moreover,we reiterated our call rightbefore Christmas(Ride the Santa Claus Rally,published December 19,2012).The subsequent stock performances were inline with our calls and the Macau Gaming sector rose by an average of 15%vs.the Heng Seng Indexs 5%rise.At close ofbusiness on January 24,the target prices of all our covered stocks had been reached.Now,given that the VIP market recoveryhas already arrived earlier than we had expected,we would like to upgrade the sectors target multiples to an average of 16xEV/EBITDA from 13x to reflect the VIP markets earlier than expected return.There will likely be further upsides if therecovery is even stronger than our current revised forecasts indicate;we thus revise our target prices for gaming operators.Figure 3:Revised target prices for gaming operators,New Rating,Old Rating,New Target Price,Old Target Price,Changes%,GalaxySands ChinaSJMMGM ChinaWynn Macau,BUYBUYACCUMULATEACCUMULATEHOLD,BUYACCUMULATEACCUMULATEACCUMULATEHOLD,42.0046.4024.0017.0022.80,35.4035.0020.5017.0021.20,18.6%32.6%17.1%0.0%7.5%,Source:CICC ResearchPlease read carefully the important disclosures at the end of this report3,CICC Research:January 25,2013,News update,Making progress on the proposed new Macau-Zhuhai border crossing,In order to improve the traffic flow through the Gongbei border gate which handles 260,000 passengers a day on averageand is open from 7ammidnight Macau proposed building a second border crossing with Zhuhai which would remain open24-hours a day and be equipped to handle 250,000 passengers per day.The new checkpoint is expected to be located wherethe Nam Yeut wholesale market(拱北口岸以西约 800 米南粤批发市场现址)now is,and will be for pedestrians only;however all details including its operating hours must be approved by Beijing.Since the new border crossing was firstproposed at last Mays annual Guangdong-Macau Cooperation Joint Conference,the governments of Guangdong,Zhuhai andMacau have held several rounds of talks to discuss the project.This week,SAR Chief Executive,Chui Sai On is in Beijing tomeet with Central Government officials and says he aims to get the crossings related approvals“as soon as possible”.,Comments,Infrastructure improvement is always positive to the Macau Gaming sector in the long term,given it will directly improveMacaus accessibility to mainland Chinese visitors,supporting the growth of visitor numbers.However,there is no cleartimeline on this proposed project,and thus it will have limited near term impact on visitations.,Please read carefully the important disclosures at the end of this report,4,Jan-12,Jul-12,Aug-12,Sep-12,Oct-12,Nov-12,Dec-12,Jan-13,Feb-13,Feb-12,Mar-12,Apr-12,May-12,Jun-12,10%,CICC Research:January 25,2013Sector chartsFigure 4:Macau GGR by month(January 2012January 2013e),30,00025,000,HKD mn34.8%,40%35%30%,20,00015,000,22.3%,24.4%,21.9%,19.6%,25%20%,10,0005,000-,7.3%,12.2%,1.5%,5.5%,12.3%,3.2%,7.9%,11.0%,15%10.0%5%0%,Monthly GGRSource:DICJ,CICC ResearchFigure 5:Daily GGR run rate comparisonsMOP mn/day,YoY%,1,4001,200,1,300,1,000,843,796,894,829,911,829,967,920,904,800600400200-,Aug-2012,Sep-2012,Oct-2012,Golden,Nov-2012,Dec-2012,Average,First 13,First 20,Jan-2013,Week(1-7Oct)2012,2012,days Jan2013,days Jan2013,Source:DICJ,CICC ResearchFigure 6:Macau GGR by segment(20062015e),HK$bnMacau Casino RevenueYoY%VIPYoY%Mass marketYoY%SlotsYoY%,20065520.1%3627.4%1711.6%264.2%,20078146.6%5451.6%2333.1%375.1%,200810631.0%7232.3%2824.0%557.2%,20091169.7%788.2%3212.6%615.1%,201018357.8%13269.9%4333.4%832.5%,201126042.2%19044.6%5936.9%1131.4%,201229513.6%2057.5%7832.6%1316.9%,2013E33513.5%2228.5%9725.0%1624.0%,2014E36910.0%2314.0%11922.0%1920.0%,2015E4039.3%2383.0%14220.0%2320.0%,Source:DICJ,CICC ResearchFigure 7:Market share projections,Companies,2009,2010,2011,1Q2012,2Q2012,3Q2012,4Q2012,2012E 1Q2013E 2Q2013E 3Q2013E 4Q2013E,2013E,2014E,GalaxySands ChinaSJMWynn MacauMGM ChinaMPEL*,12.3%23.4%29.4%14.7%8.7%11.6%,11.0%19.3%31.3%15.0%8.9%14.5%,16.2%15.6%29.0%14.0%10.5%14.6%,19.1%17.7%27.3%12.5%10.1%13.4%,21.4%17.7%26.7%12.0%10.0%12.2%,19.3%19.2%26.1%12.1%9.7%13.6%,18.3%20.6%27.4%10.5%9.5%13.7%,19.5%18.9%26.9%11.7%9.8%13.2%,18.7%20.6%26.6%10.6%9.9%13.5%,19.0%22.9%26.2%10.2%9.5%12.1%,19.2%23.7%25.8%10.1%9.4%11.9%,19.1%23.7%25.7%10.0%9.3%12.1%,19.0%22.8%26.1%10.2%9.5%12.4%,18.9%23.5%25.6%10.1%9.5%12.3%,Total,100.0%,100.0%,100.0%,100.0%,100.0%,100.0%,100.0%,100.0%100.0%100.0%100.0%100.0%,100.0%,100.0%,Source:DICJ,CICC ResearchPlease read carefully the important disclosures at the end of this report5,1Q09,1Q09,2Q09,3Q09,4Q09,1Q10,2Q10,3Q10,4Q10,1Q11,2Q11,3Q11,4Q11,1Q12,2Q12,3Q12,4Q12,3Q10,4Q10,1Q11,2Q11,3Q11,4Q11,1Q12,2Q12,3Q12,4Q12,2Q09,3Q09,4Q09,1Q10,2Q10,-,-,CICC Research:January 25,2013,Figure 8:Macaus VIP GGR by quarter(1Q094Q12),Figure 9:Macaus mass market including slots GGRby quarter(1Q094Q12),605040302010,HK$bn-19%-19%,26%,60%,71%,99%,57%62%,48%50%52%,32%,24%,7%,%120%100%80%60%40%-1%3%20%0%-20%-40%,30252015105,HK$bn2%4%,15%,32%33%,37%,33%,31%31%,36%,39%38%,36%,30%,%27%28%,45%40%35%30%25%20%15%10%5%0%,VIP GGRSource:Company data,CICC Research,YoY%,Mass GGRSource:Company data,CICC Research,YoY%,Figure 10:Valuations of comparables,Name,Ticker,Rating,Last price Target price Upside Mkt Cap,EPS,EV/EBITDA,P/E,Dividend Yield(%),FCF Yield(%),Local,Local(%)(US$mn),2012E 2013E,2012E 2013E,2012E 2013E 2012E 2013E,2012E 2013E,Macau Gaming Operators,GalaxySands ChinaSJMMGM ChinaWynn MacauMPEL,0027 HK1928 HK0880 HK2282 HK1128 HK6883 HK,BUYBUYACCUMULATEACCUMULATEHOLDNOT RATED,34.4538.4021.0017.4021.2051.70,42.0046.4024.0017.0022.80n.a.,21.9%20.8%14.3%-2.3%7.5%n.a.,18,68439,89715,0278,52814,18511,056,1.780.151.151.231.260.25,2.170.261.321.141.420.31,14.221.612.512.013.413.4,11.915.111.011.312.411.9,19.333.018.514.216.827.1,15.918.916.115.214.921.8,0.0%3.0%4.0%5.3%5.7%0.0%,0.0%3.7%4.7%4.9%5.7%0.0%,4.1%1.8%5.5%7.7%5.4%9.3%,2.2%4.2%6.1%5.4%5.5%3.0%,Sector Average,17,896,0.97,1.10,14.5,12.3,21.5,17.1,3.0%,3.2%,5.7%,4.4%,US Gaming Operators,Las Vegas SandsMGM resortsWynn resorts,LVS US NOT RATEDMGM US NOT RATEDWYNN US NOT RATED,53.5613.06124.32,n.a.n.a.n.a.,n.a.n.a.n.a.,44,1046,38912,504,2.18(0.66)5.43,2.68(0.39)6.10,14.410.910.4,12.59.99.8,24.5n.a.22.9,20.0n.a.20.4,4.2%n.a.7.6%,2.8%n.a.3.2%,2.8%6.5%7.4%,5.4%7.3%5.9%,Sector Average,20,999,2.32,2.80,11.9,10.8,23.7,20.2,5.9%,3.0%,5.6%,6.2%,Other Gaming Operators,GENTING BHD,GENT KL NOT RATED,9.58,n.a.,n.a.,11,637,0.65,0.66,6.9,6.6,14.7,14.4,0.9%,0.9%,11.7%,10.5%,GENTING Malaysia GENM KL NOT RATEDGENTING Singapore GENS SP NOT RATED,3.641.45,n.a.n.a.,n.a.n.a.,6,78814,387,0.270.05,0.300.06,7.211.9,6.710.8,13.427.3,12.223.7,2.2%0.6%,2.4%0.6%,6.2%3.1%,8.0%6.8%,Sector Average,10,937,0.33,0.34,8.6,8.0,18.4,16.8,1.2%,1.3%,7.0%,8.4%,Source:Bloomberg,CICC ResearchNote:Pricing at January 23,2013.Please read carefully the important disclosures at the end of this report6,Jan-12,Feb-12,May-12,Oct-12,Jan-13,Jul-12,Apr-12,Aug-12,Sep-12,Nov-12,Mar-12,Jun-12,Dec-12,CICC Research:January 25,2013Galaxy(00027.HK):BUY,TP HK$42.00Earnings upgrade reflects earlier VIP recoveryFigure 11:Galaxy Financial highlights and share information,(HK$mn)Revenue(+/-%)EBITDA(+/-%)EBIT(+/-%)Profit before tax,2010A19,26257.5%2,23192.2%1,720177.5%958,2011A41,186113.8%5,749157.7%4,501161.6%3,060,2012E56,59937.4%9,99173.8%8,27583.9%7,499,2013E62,65410.7%11,76117.7%9,75517.9%9,100,2014E68,94010.0%13,74916.9%11,28115.6%10,568,Bloomberg codeShare priceTarget priceDaily turnover(mn shares)52wk high/lowFree float(mn shares)Total shares(mn shares)Market Cap(HK$mn)Major shareholders(%),27.HKHK$34.45HK$42.009.5HK$35.35/16.622,2634,205144,862City Lion Profits(31.4%),(+/-%)Net profit(+/-%),-22.2%898-21.8%,219.3%3,003234.6%,145.0%7,358145.0%,21.4%8,93021.4%,16.1%10,37016.1%,%00027.HKHSI Index,Last week+7.15+1.19,1m+14.83+4.85,3m+32.76+8.37,YTD+13.51+4.32,Basic EPS(HK$)(+/-%)Diluted EPS(HK$)(+/-%)BPS(HK$)(+/-%)P/EP/BROE(%)Dividend yield(%)FCF yield(%)EV/EBITDA,0.23-21.9%0.23-22.3%2.3111.5%152.414.99.8%0.0%-1.4%11.4,0.73219.3%0.71215.9%3.3846.4%48.210.221.1%0.0%1.8%11.2,1.78145.1%1.78149.9%5.2354.8%19.36.634.1%0.0%4.1%14.2,2.1721.4%2.1721.4%7.4041.4%15.94.729.3%0.0%2.2%11.9,2.5116.1%2.5116.1%9.9134.0%13.73.525.4%0.0%-1.3%10.3,22020018016014012010080,Hang Seng Index,Galaxy,Source:Company data,CICC ResearchInvestment positivesWe continue to like Galaxy and raise our 12-month TP from HK$35.40 to HK$42.00,given:4Q12e results expected to beat consensus by 3%:Largely thanks to the favorable win rate Galaxy Macau delivered inDecember(3.85%at our estimates)and improved VIP rolling volume overall,Galaxy recorded a GGR ofMOP14,396mn(+2.9%QoQ)in 4Q12 beating our previous estimate of MOP13,783mn by 4.4%.After factoring in theactual 4Q12 GGR delivered and expected continued margin expansion due to VIP/mass product mix shift,we nowexpect Galaxy EBITDA to grow to HK$2,686mn(+21.5%YoY&+2.3%QoQ)in 4Q12e.Thus,Galaxy expects todeliver FY12e EBITDA of