Macau Gaming-July review:More positives on the way

JulyGGR down 3.6% YoY to MOP28,415mn.Daily GGR was MOP917mn, up 1.0% from MOP907mn in June. It was in line with market expectation of YoY declineof 2-4%. While the sector’s GGR growth did not make much turnaround from June, we saw share prices stabilized in July, reflecting that the market has mostly digested negatives/uncertainties related to VIP gaming. We maintain our positive view that the sector’s fundamental remains solid and expect further recovery in market sentiment. Our top picks are MGM China and Sands China.

    VIP volatile but picking up. Mass maintainingrobust growth on seasonality.

    We heard junket liquidity return to Macau in July, partially due to reducedbets on sports games after the World Cup. Small-sized junkets werealso said to be delivering in July, while the relatively weak hold rate dragged revenue from high rollers. We estimate VIP GGR dropped 13% YoY in July, from 17% YoY decline in June.

    Mass kept growing strongly on boosted visitorarrivals in summer vacation. We expect mass GGR to grow30% YoY last month, from 26% YoY growth in June. Overall, we estimate contribution from the mass market increased by 3ppts to 41%.

    Valuation attractive with improving YoY growth outlook。

    The sectortrades at 0.8x FY14E PEG for EPS CAGR during FY13-16E. Gloomy overseas market and relatively weak 2Q14E results from remaining four Macau casino operators castshadowon the sectorin early August. We expect another rally to comein late August after these factors are digested by the market, accompanied bythe continued recovery in gross gaming revenue.Our top picks are MGM China (resilient growth in premium mass, valuation laggard, and the biggest improvement in room/table after Cotai opening)and Sands China (biggest exposure to mass-market gaming, Sands Cotai Central keeps ramp-up strongly, and the biggest table yield improver in the coming three years).

    Key risks for the sector are: 1) slowdown in mass market gaming growth, and 2) restriction on visa policy regarding frequency of traveling between mainland China and Macau.