Macau Gaming:Your handy guide to 3Q17results

VIP segment continues to lead growth: Macau 3Q17top-line gaming revenuegrew 7% q-o-q and 22% y-o-y. Based on our estimates, VIP revenue outpaced mass,recording 10% q-o-q and 36% y-o-y upticks vs mass that grew at 5% q-o-q and 10%y-o-y. Given shift in the gaming mix, we expect industry EBITDA to lag revenuegrowth at 6% q-o-q and 16% y-o-y. The spillover effect from strong VIP growth intomass seemed to be less pronounced vs our observation historically. This may beattributed to the fact that the junket business is seeing a higher percentage of cashplay, in our view.。

    Wynn to lead in y-o-y EBITDA growth, Galaxy and Melco Resorts in q-o-q: WynnPalace opened in August 2016. Given the base effect, we expect to see y-o-y growthstay strong and hit 76%, or USD310m in property EBITDA, as it continues to grow itsVIP and mass segments. Sequential growth is less strong at 4% q-o-q as thePeninsula business could see some impact from the typhoon aftermath andnormalization of VIP win rate. We think Galaxy and Melco Resorts will both see astrong 3Q17. Outperformance in VIP and mass growth collectively drove 9% q-o-qand 33% y-o-y EBITDA growth for Galaxy which translates into HKD3.57b in groupEBITDA. Melco Resorts should benefit from 1) favourable hold in the VIP business;

    2) recovery in mass market share at City of Dreams; and 3) continual ramp-up ofStudio City, in particular its VIP business. In the Philippines, we expect win rate tonormalize after a few consecutive quarters of playing lucky. Overall, we estimateMelco property EBITDA to come in at USD355m, +8% q-o-q and +23% y-o-y.。

    Continue to prefer Galaxy and Melco Resorts: Our valuations and forecasts areunchanged in this note. Our FY17/18EBITDA estimates are on average 1% ahead ofthe Street. While we expect to see good 3Q17results, we think the market is lesslikely to respond positively given slower-than-expected Golden Week growth,especially in mass. Trading at 14x FY18EV/EBITDA, we see limited re-ratingopportunities in the near term. We recommend investors to stay selective andcontinue to favour Galaxy (27HK, CMP HKD54.1, TP HKD59.1) and Melco Resorts(MLCO US, CMP USD23.9, TP USD30.5), both rated Buy, for their undemandingvaluations, strong operating records and good supply pipelines.。