Macau Gaming:Eyeing an even stronger Q4

Macquarie’s proprietary industry model projects 11% gross gaming revenue(GGR) growth for November vs consensus’ 6%. We reiterate our bullish sectorview post Q3 results and raise FY17 industry GGR by 2% and lift our companyEBITDA forecasts by 1-15% for the six stocks under our coverage (with theexception of Wynn Macau). We now have five Outperforms and one Neutral aswe upgrade Galaxy to Outperform from Neutral. Wynn Macau is our top pick.

Our upgrade is affirmed by stronger visitation we observed in Q4-to-date(following 9% YoY growth in overnight visitors and the 5%+ YoY averagespending increase we estimate for Q3), driven by new openings, a stableChinese economy and Beijing’s continued support for Macau. Our FY17company earnings forecasts are 2%-11% higher than consensus. In 3Q16,gaming operators on average beat our EBITDA forecast by 5% and outpacedconsensus by 10%. However, the street only upgraded its EBITDA numbers by amere 3% post results. We thus expect further upgrades towards year-end andcontinued beats in monthly GGR. The sector trades at 13x FY17E EV/EBITDAvs 18% FY16-19E EBITDA CAGR, which we think is attractive.

New openings: Synergy, not cannibalisationAs explained in our initiation note (Viva Macau!), we believe that new openingswill enhance Macau’s overall appeal vs. regional markets and drive industrygrowth rather than cannibalise it. This is evidenced by (1) the better-thanexpectedQ3 results and (2) stronger visitation that we observed at both thePeninsula and Cotai post the opening of Parisian and Wynn Palace.

To refocus on: who will gain market share?New openings help but full ramp-up takes time. We project Wynn Macau to gainthe most market share of 2.6ppts by end-2018E on the gradual ramp-up of WynnPalace, thanks to its highest fair share among peers (see GGR share at left).

Wynn Macau remains our top pickWe appreciate Wynn’s outstanding customer-experience relative to peers withits top-quality facilities and service. We note much stronger visitation at WynnPalace in Q4-to-date vs. Q3 and expect consensus earnings to rise as weapproach end-2016/1Q17 as construction issues are settled. We upgradeGalaxy to Outperform on better-than-expected market share resilience and itsestablished relationship with Beijing as well as abundant Cotai land banksecuring its long-term prospects. We retain our Outperform rating on SJM (dueto attractive valuation), Melco Crown (ramp-up of Studio City) and MGM China(MGM Cotai to open in 2Q17). We maintain a Neutral on Sands China duemainly to its rich valuation.