Asia Pacific Gaming:Corp day takeaways,Strong VIP,focus on dividend;Buy SJM/Wynn

Broadbased GGR recovery; Wynn/SJM levered to VIP, 4Q previewWe invited a few casinos and a junket operator from across the region toattend our gaming corporate day in HK on Jan 5-6. Key takeaways:

VIP momentum sustained; patronage in premium mass picked up…Suncity continues to see solid VIP GGR momentum mtd in Jan after+20%/15% yoy in Nov/Dec. Casino operators also see a broadbasedmass-mkt recovery with improvement in premium mass patronagehelped by better macro and the novelty effect of new casinos. Ourhotel survey also suggests good visibility for demand during CNY.

…although we caution against turning overly bullish on VIP: Asdiscussed in our Dec report, we expect a slower pace of VIP recoveryvs. prior upcycles as: (1) although well capitalized (benefiting fromonshore liquidity outflow amid Rmb devaluation), junkets are moreprudent and seek to diversify into other markets (e.g., Philippines); (2)casinos have not stepped up in extending credit to junkets/players. Our+9% VIP GGR forecast only assumes a steady 4Q16 run rate in FY17.

Wynn/SJM most leveraged to VIP pickup: SJM’s Grand Lisboa saw asharp jump in rolling volume in 4Q, benefiting from ample liquidity ofits major junket, Golden Group. Wynn/Galaxy remain top-choicejunkets. Wynn now accounts for 20% of Suncity’s volume, vs. 10%before WP opening. On the flip side, MGM might have lost GGR in 4Qas Wynn shifted some tables back to peninsula.

New projects on track: MGM Cotai and Lisboa Palace are on track toopen by mid-17/1H18 respectively. Both expect 150-250 new tablequota similar to prior openings, although it matters more for MGM asit has fewer table count. We expect the new MGM Cotai/WP/CoDcluster to gradually draw more foot traffic away from Galaxy Macau.

4Q16 preview: We expect solid 4Q16 results, with revenue/EBITDA+12%/15% yoy implying +0.7% margin improvement to 22.4%. Wynnand SJM would likely benefit from VIP pickup with EBITDA +17%/+12%qoq at the expense of MGM (-6%) for GGR loss back to Wynn Macauand a high base in 3Q. Investors will also focus on dividend payout,esp. for Wynn and MPEL which may uplift more cash to parentcos.