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We introduce to our readers the gaming concepts of WIN, HOLD Ratesand Table Yield. We break down casino win into its elements: houseadvantage, length of play, average bet size and hands per hour. We alsodiscuss what operators in Macau have been doing to improve overall tableyields and which of them we believe have more opportunity to tweak tableyields to capture untapped growth in the medium term.

We believe table yield improvement opportunities lie more on the massgaming side, where yields remain low compared to VIP. Casino tablesupply is now limited to +3% per annum but mass gaming growth is expectedto be +20-30% over the next couple of years, so table yield management isnecessary to successfully capture this growth. For VIP gaming, revenues area function of available credit offered by casinos and junkets as well as thewhims and health of high rollers from mainland China. One argument is thatcasino management has fewer tools to manage VIP gaming than it has formass. Improvements on table yield for VIP gaming are therefore limited. Wesee VIP table yields improving as a result of market growth in the mid singledigits while table growth remains flat.

Higher table yields mean gaming assets are being used more effectivelyto generate revenues. Therefore an operator with good table yieldmanagement will generate more growth with the addition of new tables. This isimportant given that tables are now a limited commodity. We believe tableyield improvement is based on management creativity as well as having theright mix of assets to attract visitors to maximize table utilization. Thereforehotel rooms and non-gaming attractions help incentivize customers to stayand play longer at your property versus a competitor’s. Furthermore, havingmultiple properties allows operators to market to different clientele and theoption to shift tables to higher yielding locations.

We believe operators with assets on both the Peninsula and the CotaiStrip will have more flexibility to tweak the levers that improve table yieldto capture mass gaming growth over the next 2 years. We note thatMelco, Sands and Galaxy have exposure to Cotai and the Peninsula, while theother three operators are limited to the Peninsula for the time being. AlthoughWynn’s property has one of the highest table yields in the sector, it has littleremaining hotel and table capacity to attract significant growth and will have torely on creativity to enhance table yields until their Cotai expansion comesonline in 2016. In contrast, operators on the Cotai side have facilities withmore hotel rooms, gaming space, tables and non-gaming attractions to drivemass visitors to their properties.

Our top pick in the sector is Galaxy (27.HK, BUY, HK$40),