Macau Gaming:Monetary Authority issues clarification on Unionpay report

The SCMP (Dec 9) reported that the daily cash withdrawal limit byUnionpay cards via ATMs in Macau will be reduced from MOP10k toMOP5k, after MOP10bn cash was withdrawn in Nov alone. Unionpayclarified there is no change to its daily overseas withdrawal limit. After themarket close, Macau’s Monetary Authority issued a press release statingthat only the per-transaction limit is being reduced from MOP10k toMOP5k, not the daily limit, taking effect on Dec 9. Although mainlandersmay find it less convenient to withdraw the same amount of cash, theabove measure will not affect overall liquidity supply to Macau and hencewe believe it should have limited impact on GGR.

As flagged in our prior reports, some players use cards to bypass China’sexchange controls by (1) withdrawing up to Rmb10,000 cash per day fromPRC bank accounts through ATMs; (2) raising up to Rmb1mn by returningpurchases to watch/jewelry shops. Since grind mass players (60% of massGGR) on average lose

According to China’s State Administration of Foreign Exchange (SAFE),Macau accounted for US$8bn/$15bn or 35%/18% of Chinese overseasUnionpay card cash withdrawals/shopping in 2015 (1%/2% of China’scapital outflow in 2015). If we assume 2/3 relates to gaming, this wouldcontribute US$15bn or ~30% of Macau’s mass-mkt cash drop last year.

The market has been very sensitive to newsflow re Unionpay cards as it isone of the major liquidity sources for the mass market (Exhibit 4-5),contributing 49%/72% of Macau operators’ FY16E revenue/EBITDA. Thoughwe believe the above news has limited earnings impact, it may remindinvestors of the risk associated with liquidity controls esp. after Chinaimposed various measures in recent weeks (e.g., US$5k cap on cardtransactions for purchase of insurance policies in HK; requirement forbanks to report remittances of over US$5mn vs. US$50mn before). After32% appreciation ytd, Macau stocks are trading above mid-cycle at 14xFY17E EV/EBITDA, and may be vulnerable to profit taking. Coupled withconcern over further tightening, the sector may remain volatile near term.

We see a correction as a potential buying opportunity for upside from VIPGGR recovery and margin expansion (See our report dated Dec 5, 2016).