GS lifts 2012 income growth forecast for Macau's gaming sector to 22%, raises relevant TPs by 1-35% 04/11/2012
Goldman Sachs reported on Macau's gaming sector with the following details:
Raise 2012 GGR growth to 22% on money velocity stabilization Macau’s VIP GGR growth has decelerated to 23% in 1Q12 (3Q11: 52%), driven by slower money velocity amid weaker economic conditions. Recent macro data are mixed with China PMI improving on better US job market but China property prices, as a proxy of wealth creation, are still on a downtrend although at a moderate pace. Barring further macro deterioration, we believe a stabilization in money velocity, additional cage capital to be deployed at Sands Cotai Central (SCC) for April 11 opening and a pickup in visitations would support GGR growth in 2012. We raise our 2012E GGR growth forecast to 22% from 12% (19% VIP, 31% mass-market). Should money velocity recover to the 2Q11 level, our analysis implies 33% 2012E GGR growth and 12% upside to our EBITDA forecasts for Macau operators. The stocks appear to have priced in 10%-20% yoy GGR growth in 2012, in our view.
Formation of new cluster in Cotai; Strong non-gaming growth The market share trend after Galaxy Macau (GM)’s opening confirms the formation of a new cluster in Cotai, where the existing casinos did not lose any share. With SCC doubling the number of hotel rooms, outstripping 21% table additions in Cotai till 2013, we expect improving table efficiency and forecast 48%/26% GGR growth in Cotai in 2012E/13E, vs. 10%/10% in Peninsula. We think both GM and COD, especially the latter for its proximity, should benefit from the spillover effect from SCC’s phased opening over the next 1-2 years. On the other hand, we expect SJM and Wynn Macau to lose the most market share. The acceleration of nongaming revenue growth coincided with a pickup in visitation in 2Q11. We see significant growth potential in retail and forecast 25% 2011-2014E retail sales CAGR in Macau, which we believe will benefit Sands China as it is best positioned and support 40% net rental yield on costs for SCC.
Maintain Buy(CL) on Sands; MPEL up to Buy; SJM down to Neutral Despite potential near-term profit taking, we reiterate Buy on Sands China (on CL) for its Cotai, mass-market and non-gaming exposure. Upgrade MPEL to Buy from Neutral, which we expect will benefit from SCC’s opening along with the stock’s undemanding valuation. We downgrade SJM to Neutral from Buy on further market share loss in coming quarters due to the opening of SCC. For Macau gaming stocks under coverage, we revise 2012E-2014E EPS by 2%-95% and 12-m TPs by 1%-35%.