Macau Gaming:An inflexion point?Not really…

August GGR surprised on the upside: DICJ reported that August gross gamingrevenue (GGR) came in at MOP18.8b, up 1.1%yoy, which came in marginally aheadof expectations. The figure is significant as it marked the end of 26 consecutivemonths of year-on-year declines in GGR growth. The opening of Wynn Palace on 22August played a role in driving the year-on-year growth, as the new facility, theinjection of fresh credit, and the more active promotion from its competition havecollectively created new demand in the VIP segment. This is especially apparent inthe last week of August. Lastly, better than theoretical hold-rate contributed in liftingthe VIP numbers as well.

    Digging deeper – VIP drove the surprise: By segment, we estimate the VIP marketto be up c4%yoy and c8%mom. Stronger volume aside, favourable win rate mayhave boosted overall revenue by around 2%. In short, VIP is around 48% of totalGGR. Mass is up around 3%mom but still down 2%yoy, i.e. mass is 47% of totalGGR. Mass growth trend seems to be more sluggish than what we observe on theretail side where some of the shops begin to yield of year-on-year growth in August,helped by the summer foot traffic. Slot makes up the remaining balance of 5%, -5%yoy.

    Sequential improvement is in price: While we are encouraged by the improvinggrowth trend in Macau GGR, narrowing of the year-on-year drop is within themarket’s expectations given easier comps and new openings. August GGR growthcame in better versus expectations, but the upside surprise stemmed mainly fromVIP, which was driven in part by luck. The sector is trading at 13.4x FY17eEV/EBITDA. Entering into seasonally weaken month of September, we see limitedupside especially in the short run. We prefer Melco Crown (MPEL US) on relativebasis as its business has not seen much impact from the new opening and valuationis attractive at 9x FY17 EV/EBITDA.