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GT
JA
Researc
h 国
泰君
安研
究
GT
JA
Researc
h 国
泰君
安研
究
Gam
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ecto
r 博
彩
Port
Secto
r 港口业
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Sector Report: Gaming Noah Hudson
行业报告:博彩 +86 755 23976684
13 March 2015
Challenges Persist as the Sector Searches for a Bottom 挑战仍然存在,行业寻找底部
In 2014, Macau visitors increased by 7.5% to 31.5 million but total Gross
Gaming Revenue (“GGR”) declined by 2.6%, the first decline since the
industry’s opening up in 2002.
Catalysts: 1) Casino hotel rooms will increases by 18.9% this year,
bringing some alleviation to Macau’s hotel room bottleneck (2014
casino hotels occupancy was at near capacity at 96.4%, the highest
ever). 2) US$7.3 billion in new casino development to go into operation
in 2015, increasing the number of gaming tables by 17.5%. In addition,
several important infrastructure projects under development most likely won’t
be ready until after 2015: 3) Macau Intercity Light Rail Transit, 4) Pac On ferry
terminal, 5) HK-Zhuhai-Macau Bridge, 6) Zhuhai-Macau New Channel
pedestrian border crossing and 7) increased capacity at the Macau Airport.
Challenges and threats: 1) the ongoing anti-corruption campaign, 2)
Beijing has set low 2015 GDP and M2 growth targets, 3) a full smoking
ban in casinos is likely to be implemented and 4) Macau is planning to
cap the number of mainland visitors. We also think the Philippines and
South Korea are threats and will cut into Macau’s market share this year.
We forecast 1Q15 to 4Q15 Macau GGR qoq growth of -16.9%, -4.0%,
5.7% and 8.1%, respectively; this works out to a 2015 full year decline of
27.2%. GGR could decline further sequentially, but we think we are
approaching the bottom if not there already. In 2015, we expect flat mom
growth except for when new casino hotel room or gaming table capacity is
added. Downgrade sector outlook to “Neutral”
2014 年,澳门的入境旅客量增长 7.5%至 3,150 万,但是总博彩收入下降 2.6%,是博彩
业自从 2002 年开放之后首次下降。
催化剂:1)今年,赌场酒店客房量将提升 18.9%,部分打通澳门的酒店客房瓶颈(2014
年赌场酒店入住率达到 96.4%,接近爆满,也是历史最高水平)、2)投资额 73 亿美元的
新赌场项目今年开幕,将提升赌台量 17.5%。另外,几个重要基础设施项目大约要到 2015
年之后才完成:3)澳门城际轻轨运输、4)北安码头、5)港珠澳大桥、6)粤澳新通道以
及 7)扩建澳门机场。
挑战和威胁:1)持续反腐工作、2)北京制定较低的 2015 年国内生产总值增长和 M2 货
币供应量增长目标、3)澳门政府拟通过法案在赌场完全禁止吸烟以及 4)澳门正在计划限
制内地旅客量。我们也认为菲律宾和韩国是威胁,今年将啃掉部分澳门的市场份额。
我们分别预期 2015 年 1 季度至 2015 年 4 季度澳门总博彩收入环比增长为-16.9%、-4.0%、
5.7%和 8.1%,相当于 2015 年全年下降 27.2%。我们认为总博彩收入有可能进一步环比
下降,但是应该快要见底(或许已经见底)。我们预期澳门总博彩收入增长在 2015 年除
了有新增赌台或者酒店客房的那些月份之外,月环比持平。下调行业评级至“中性”。
Rating: Neutral Downgraded
评级: 中性 (下调)
Stock performance 股价表现
Source: Bloomberg.
Company Name
公司名称
Code
编号
Price
股价
(HK$)
Rating
投资评级
FY14 PER
市盈率
(x)
FY15PER
市盈率
(x)
FY16 PER
市盈率
(x)
FY14 PBR
市净率
(x)
FY14 ROE
净资产收益率
(%)
FY14 Yield
股息率
(%)
Mgm China 02282 HK 14.600 Neutral 9.7 13.6 15.0 8.7 88.9 9.2
Galaxy Entertain 00027 HK 34.200 Accumulate 13.3 12.2 12.5 9.2 30.5 6.2
Wynn Macau Ltd 01128 HK 17.260 Neutral 13.9 19.2 15.7 7.9 62.6 4.8
Melco Crown Ente MPEL US US$21.335 n.a. 9.7 13.6 15.0 2.4 10.8 2.5
Sjm Holdings Ltd 00880 HK 9.790 n.a. 13.3 12.2 12.5 2.2 22.5 9.4
Sands China Ltd 01928 HK 31.300 n.a. 13.9 19.2 15.7 5.1 34.3 7.0
Weighted Average. 市值加权平均
Neutral 13.2 15.3 13.8 6.0 37.6 6.3
Source: Bloomberg, Guotai Junan International.
(60.0)
(50.0)
(40.0)
(30.0)
(20.0)
(10.0)
0.0
10.0
20.0
30.0
Mar-14 Apr-14 Jun-14 Jul-14 Sep-14 Oct-14 Dec-14 Jan-15 Mar-15
% return
HSI SJM GalaxyWynn Macau Melco Crown MGM ChinaSJM
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Table of Contents
Table of Contents ........................................................................................................................................... 2
COMPETING GAMBLING JURISDICTIONS ............................................................................................... 3
Singapore ...................................................................................................................................................... 3
Philippines ..................................................................................................................................................... 3
South Korea................................................................................................................................................... 5
Taiwan .......................................................................................................................................................... 6
Vietnam ........................................................................................................................................................ 6
Japan ............................................................................................................................................................. 6
MACAU CASINO INDUSTRY ....................................................................................................................... 7
Visitors .......................................................................................................................................................... 7
Recent Infrastructure Improvements ........................................................................................................... 11
Catalysts – Infrastructure, Casino & Hotel Development .............................................................................. 12
Challenges & Risks ....................................................................................................................................... 15
Macau Gross Gaming Revenue .................................................................................................................... 17
Our 2015 Macau GGR Forecasts .................................................................................................................. 19
APPENDIX .................................................................................................................................................... 20
Macau Gaming Historical Development ....................................................................................................... 20
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COMPETING GAMBLING JURISDICTIONS
In 2014, gross gaming revenue decreased in Macau and Singapore but increased in South Korea and the Philippines.
Even with the 2.6% decline in its 2014 gross gaming revenue (GGR), Macau is by far the world’s largest gaming destination
with US$44,009 million in 2014 GGR. The second highest was the Las Vegas Strip, which had casino revenue of US$6,373
million last year. Singapore’s 2014 gross gaming revenue (GGR) was US$5,982 million down 1.6% from 2013, slightly better
than the 2.6% drop for Macau’s 2014 GGR. However, not all Asian gaming jurisdictions suffered along with Macau and
Singapore in 2014. For the first three quarters of 2014, casino revenue for South Korea increased 10.9% yoy to US$1,902
million and casino revenue for the Philippines increased 19.0% yoy to US$949 million.
Figure-1: USA, Macau & Singapore Gaming Revenues Figure-2: Macau, South Korea & Philippines Gaming
Revenues
Source: Gaming Inspection and Coordination Bureau Macao SAR, Bloomberg,
University of Nevada, Las Vegas, Guotai Junan International. Note: US Total for 2014 is an estimate of Guotai Junan International.
Source: Gaming Inspection and Coordination Bureau Macao SAR, Bloomberg,
Guotai Junan International.
Singapore
With no plans for further casino development, we don’t think Singapore will have much impact in diverting
incremental demand from Macau in the foreseeable future.
Singapore GGR decreased by 1.6% in 2014, with 4.7% decline in the VIP segment, partially offset by 8.2% increase in
the mass market. Gaming in Singapore began in 2010, when it opened its first two (and currently still the only) casinos, Las
Vegas Sands (LVS US)'s Marina Bay Sands and Genting Group (3182 MYX)'s Resorts World Sentosa. Despite the
competition, in 2010, Macau’s GGR surged a record 58%, and grew another 42% in 2011. We think Singapore, which is a four
hour flight from Guangzhou, China, will have a limited impact on drawing PR China gamblers as long as it maintains its
relatively rigid visa policies for PR passport holders. For example, PR nationals applying for a Singapore tourist visa must
have a local Singapore resident who must provide a letter of introduction. Also, there are no new casinos planned for
Singapore.
Philippines
With City of Dreams Manila opened on Feb. 2, we think the Philippines will take incremental market share from Macau
in 2015.
Entertainment City casino resort hub in Manila Bay, Philippines, opened the first of its four planned casinos in March
2013. The Philippines, which has had a history of gaming since the 1800’s when it was a Spanish colony, didn’t open its first
Macau; 45.2 ; 38%
Singapore; 6.1 ; 5%
US Total*; 66.7 ; 57% 44.0 ; 38%
6.0 ; 5%
66.7 ; 57%
Macau Singapore US Total*
20132014
US$ Billion
Macau; 45.17 ;
93%
Philippines; 1.1 ; 2%
South Korea; 2.3
; 5%34.54; 92%
0.95 ; 3%
1.90 ; 5%
Macau Philippines South Korea
201320141Q - 3Q
US$ Billion
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large scale casino complex until 2010 with Alliance Global Group Inc and Genting Hong Kong’s Resorts World Manila, which is
currently being extended to double the size of its gaming and hotel facilities in 2017. Now, four operators have been granted
licenses to develop a US$5.9 billion casino resort destination in Philippines’ Manila Bay called Entertainment City.
Entertainment City’s first resort, Bloomberry’s US$1.2 billion Solaire Resort and Casino, opened on March 16, 2013 and
has around 361 gaming tables, 1,623 slot machines and 88 electronic table games.
City of Dreams Manila, the second of four planned Entertainment City casino resorts, opened on Feb. 2, 2015 with 380
gaming tables, 1,700 slot machines and 1,700 electronic table games and Mandarin speaking staff. The members-only
Signature Club has Mandarin-speaking staff and entrance signs in both English and Chinese. With its well recognized brand
among Chinese, we think Melco Crown (Philippines)’s US$1.3 billion City of Dreams Manila will attract a significant number of
Chinese VIP gamers.
Figure-3: City of Dreams Manila Opened on Feb. 2, 2015
Source: www.ggrasia.com.
Two more Entertainment City casinos with total capex of US$3.5 billion are planned to open in 2015 and 2018. The
third Entertainment City casino resort is Japan-based pachinko machine maker Universal Entertainment Corp’s US$2.3
billion Manila Bay Resorts, targeted to open by the end of 2015 with about 500 gaming tables and 3,000 slot machines.
According to the designated executive vice president Matt Hurst, they expect that 75% of revenue will come from international
customers, of which Chinese will be a significant proportion. The last casino development, Alliance Global Group Inc and
Genting Hong Kong’s US$1.1 billion Bayshore City Resorts World broke ground in October 2014 with completion targeted
for the end of 2018.
China and the Philippines’ ongoing territorial dispute as well as travel safety concerns will put a damper on Chinese
enthusiasm for gaming in the Philippines. The Philippines and China have an ongoing dispute over claims on territory in
the South China Sea believed to be rich with mineral and oil reserves and which is also an important trading route. In addition,
eight Hong Kong tourists were killed during a bus hijacking in Manila in 2010 with surviving family demanding an apology and
compensation from the Philippine government, which has refused, leading to tensions with Hong Kong. We think these issues
will limit the number of Chinese tourists willing to travel to the Philippines.
Scheduled to be completed in Oct. 2015, the NAIA Expressway will be a key development since it links from Manila
Bay to Manila airport. The Philippines government is working on improving its infrastructure, which is currently inadequate.
According to its website, the Philippines Department of Public Works and Highways increased its budget by 32.3% in 2014,
and further by 43.5% for 2015. According to the World Economic Forum’s Global Competitiveness Report, the Philippines’
global ranking in terms of quality of roads improved from 114th in 2010-2011 to 87th in 2012-2013. Also, the quality of road
index improved from 2.8 to 3.4 at par with Indonesia and targeting to be in the 4 to 5 territory in 2016.
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Manila is a 2 hour and 20 minute flight from Guangzhou, and its Entertainment City is specifically targeting China’s
VIP market. For PRC passport holders, visas on arrival are not allowed and they need to apply for travel visas before visiting
the Philippines, providing a bank deposit statement, proof of employment, or property statement. It takes about 7 working days
for the visa application process. Despite the aforementioned political and safety issues, we think that Entertainment
City will still cut into Macau’s VIP market share, especially with Beijing’s ongoing anti-corruption campaign.
South Korea
We think South Korea will take incremental market share from Macau in 2015.
As Macau cooperates with Beijing’s ongoing anti-corruption campaign, South Korea is becoming a major alternative
gaming destination for Chinese; in 2014, there was almost one Chinese tourist visiting South Korea for every three
that went to Macau. The number of Chinese tourists to South Korea surged 46% in 2014 to 6.33 million, equivalent to 29.8%
of the number of mainland visitors to Macau in the same year. Chinese visitors accounted for about 43% of all of South
Korea’s visitor arrivals in 2014. South Korea currently has 16 casinos for foreigners-only and one for locals, according to the
University of Nevada Las Vegas Center for Gaming Research. As is common in Macau, on South Korea’s Jeju island, junkets
loan gambling chips to Chinese VIP players and settle up later in China, thereby allowing gamblers to bypass China’s limits on
taking currency out of the country.
In 3Q14, Chinese VIP players accounted for 66.1% of table drop at the casinos of Paradise Co. (034230 KQ), South
Korea’s largest casino operator which has five casinos in South Korea. Paradise Co. will spend US$26 million expanding
floor space at three of its five casinos, increasing gambling space to cater for the growing number of Chinese visitors and
plans to add 26 gambling tables at its casinos, mostly for baccarat card games, bringing the total to 252. The South Korea
government has said that by 2017 it wants nearly to double the number of foreign tourists it received in 2013, with
high-spending Chinese visitors a particular target.
South Korea is aggressively growing its foreigner only casino industry, already with US$4.7 billion to be invested in
three new casinos planned to open in 2017 and 2018. Genting Singapore (G13 SI) and mainland China developer Landing
International Development (00582 HK) are planning to build a 132,265 square meters US$2.2 billion casino resort in Jeju
island (already a popular casino destination with Chinese tourists), with groundbreaking in Feb. 2015 and scheduled to open
in 2017. Paradise Co. (034230 KQ) and Japan’s Sega Sammy (6460 TYO) in November 2014 broke ground on Paradise City,
a US$1.7-billion casino resort projected to open in 2017 that will be a 15-minute walk from the Incheon International airport.
Also near the Incheon International airport, a consortium including Caesars Entertainment (CZR US) is aiming to start
construction of a 150,000+ square meters US$838.8 million gaming resort in July 2015, with the first phase possibly opening
as early as 2018. Premium mass players can be recognized as VIP players in South Korea and treated better than in Macau.
Casinos in South Korea are also hiring Mandarin-speaking staff and offering VIP treatment to big spending Chinese gamblers
including free flights, limousines and hotel stays.
The South Korean government is planning more casinos for South Korea’s west coast city of Incheon, which is a two
hour flight from Beijing, and also in Jeolla province. In addition to the above two casinos being developed in Icheon, on
January 18, 2015, the South Korean government said it would approve two more foreigners-only casino resorts and the
building of around 5,000 new hotel rooms this year, each with a minimum investment of US$925 million in the Incheon Free
Economic Zone, which is near the Incheon International Airport, 50 kilometres southwest of Seoul. One of these resorts could
be backed by Hong Kong’s Chow Tai Fook Enterprises Ltd, which on November 16, 2014 had signed a letter of intent to invest
US$1.6 billion to create a new South Korean casino resort at Incheon. Additionally, on January 27, 2015, North Jeolla
province, on the country’s southwest coast, announced that it is currently in consultations with two to three U.S. and Chinese
investment funds to build an integrated casino resort and will draw up a plan for KRW1 trillion (US$9.1 million) in investment.
Also, in Feb. this year the Incheon International Airport proposed a KRW5 trillion (US$4.6 billion) to KRW6 trillion casino resort
and is now looking to receive proposals to build the facilities and sign deals this year.
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Taiwan
Taiwan’s Matsu Islands are a ~30 minute ferry ride from Fujian province and could become a major casino destination,
but not until 2020 at earliest.
The Matsu Islands, located in the Taiwan Strait, are actually closer (~20 km) to mainland China than to Taiwan
mainland (~140 km) and would be a very convenient destination for gamers from PR China’s Southern regions. In
2009, legislation was passed allowing casinos to be built on Taiwanese islands, contingent upon approval by any such island.
Then in July 2012, Matsu, a chain of islands of Taiwan, passed a referendum allowing casinos on their islands. However,
Taiwan still requires a bill stipulating regulations for casinos before it can invite bids to build and run casinos, and such bill has
not been passed yet. The earliest Taiwan might approve such a casino bill would be June 2015, according to the director of the
Centre for the Study of Lottery and Commercial Gaming at the National Taiwan University of Science and Technology. We
estimate that the earliest the island might open any casinos would not be until 2020. Under the current draft law, casino
licenses would be valid for 30 years and taxes capped at 16% of gross gaming revenue, much more attractive terms than in
Macau.
Vietnam
Given its small planned scale, we don’t think Vietnam will be much of a threat to Macau in 2015.
The first casino out of two in the US$4 billion Ho Tram Strip opened in July 2013. Vietnam has several casinos, but the
first world class casino resort, the US$500 million The Grand at Ho Tram Strip didn’t open until July 2013 with 541 rooms and
90 gaming tables, 55 of which were VIP tables. The Grand is just the first phase of development of the Ho Tram Strip, which is
on the beachfront about 130 km (about ~2 hours drive) south of Ho Chi Minh City’s international airport. Canadian Asian Coast
Development is planning to develop the Ho Tram Strip be into a US$4 billion project with up to five resorts with a total of 9,000
five-star rooms, 180 gaming tables and 2,000 electronic gaming machines in two more casinos. Hom Tram strip will target VIP
players from China as the Vietnamese government currently only allows foreign passport holders to gamble at casinos
(although it is considering new law which would allow locals to enter casinos, if passed). However, unless it increases its
currently planned total of just 180 gaming tables, we don’t think the Ho Tram Strip will be much of a threat to Macau.
In addition to the Ho Tram Strip, in January 2015 Vietnam’s government approved plans for a new US$4 billion casino
resort with up to 400 gaming tables and around 2,000 gaming machines. Vietnam has approved plans for the
construction of a casino at Phu Quoc Island, as part of a planned larger tourism and entertainment complex. The project is in
early stages and now looking for foreign investors, who would have to make a minimum capital commitment of US$4 billion
into the resort. Phu Quoc Island, located on the coastal belt of Vietnam, Cambodia and Thailand, is being developed into a
special administrative economic zone by the Vietnamese government.
Japan
We think the earliest Japan might have a casino up and running to challenge Macau is 2020.
Japan could legalize casinos as early as…. 2007? It was reported that Japan’s Liberal Democratic party had hoped to pass
a bill to legalize casinos during the parliamentary session, but last-minute changes and a packed legislative schedule meant
that they would have to wait until the next year; the governor of Tokyo at the time, Shintaro Ishihara envisioned a casino resort
with a 1,000 room hotel…. however, this “news” was from June 2006. Shintaro Ishihara was pushing for casino legalization as
far back as 2000. Since then, it seems that once or twice a year, this same story, or a similar version, repeats itself. After
hopes of a casino bill being passed in Nov. 2014 were dashed, the story now is that it might be passed as early as 2015.
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MACAU CASINO INDUSTRY
Visitors
Hotel room bottleneck as indicated by all time high occupancy rates is crimping growth. The average occupancy rate
for star rated hotels in Macau increased by 3.4 ppt yoy to 87.0% in 2014, the highest level since data was first recorded in
1997. Occupancy rates for five and four star hotels were even higher, at 87.5% and 87.8% respectively. Looking at just the
hotels of casino operators, the bottleneck is even more severe. In the first three quarters of 2014, average occupancy rate at
the hotels of casino operators was at near full capacity at 96.4%, the highest it’s ever been. The number of visitors to Macau
increased by 7.5% in 2014 but there was almost no growth in the number of hotel rooms.
Figure-4: Macau Star Hotels Occupancy Rates Figure-5: Macau Casino Hotels Occupancy Rates
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Source: the Companies.
Table-1: Macau Star Hotel Rooms Growth
2010 2011 2012 2013 2014
5-star hotels 7.7% 18.5% 17.1% 10.7% 0.0%
4-star hotels -0.1% -0.1% 28.4% 0.7% 0.0%
3-star hotels 1.4% 0.6% 0.0% -0.4% 4.2%
2-star hotels -5.8% 0.0% 5.0% -4.5% 0.0%
Total 4.4% 11.4% 17.0% 6.5% 0.7%
Source: Government of Macao Special Administrative Region Statistics and Census Service.
With not enough hotel rooms, more visitors to Macau are going for day trips instead of overnight stays. The
proportion of overnight visitors to Macau decreased from 48.7% in 2013 to 46.2% in 2014. The number of overnight visitors
grew by just 2.1% in 2014, compared to a 12.6% increase in the number of day-trippers. We think the shortage of hotel rooms
as indicated by hotel occupancy rates at near capacity is preventing or making it prohibitively more expensive for a portion of
visitors to stay overnight.
72.1%
80.5%
84.8% 84.2% 83.6%87.0%
50%
55%
60%
65%
70%
75%
80%
85%
90%
2009 2010 2011 2012 2013 2014
Total 5-star hotels 4-star hotels3-star hotels 2-star hotels
80.7%87.5%
90.6% 93.1% 95.3% 96.4%
50%
60%
70%
80%
90%
100%
Galaxy Ent. (00027 HK) Melco Crown (MPEL US)MGM China (02282 HK) Sands China (01928 HK)SJM Holdings (00880 HK) Wynn Macau (01128 HK)Average
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Figure-6: Same Day Vs. Overnight Visitors Figure-7: Same Day Vs. Overnight Visitors, Growth
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Mass Market GGR per visitor growth fell to the lowest on record at 5.8% while that of VIP declined by 17.1%, the first
instance of negative growth on record. 2014 saw the first decline in GGR per visitor since record-keeping began in 2008.
Mass Market GGR per visitor growth of just 5.8% was well below the second lowest figure on record to 2009 when it was
16.1%. As Beijing intensified its anti-corruption crack down, 2014 VIP GGR per visitor plunged 17.1%, pulling down total GGR
per visitor for the year by 9.4%.
We expect GGR per visitor to continue to decline in 2015 as Macau adds more non-gaming attractions to attract a
broader range of tourists and diversify Macau’s offerings to include more than just gaming. Besides casinos, the
opening this year of new developments from Galaxy Entertainment (00027 HK, “GEG”) and Melco Crown (MPEL US) will all
include many non-gaming and family related attractions. Opening on May 27, GEG’s “Galaxy Macau Phase II” and “Broadway”
will bring non-gaming attractions including the world’s longest skytop aquatic adventure river ride, with along with currently
existing attractions will make Galaxy Macau one of the most expansive water parks in Greater China. GEG’s Broadway will
offer family-oriented entertainment featuring shows and performances at its 3,000-seat Broadway Theatre and will also have a
10 screen 3D Cineplex and UA Galaxy Cinemas. Melco Crown’s Studio City, opening in mid 2015, will have a “Batman Dark
Flight” virtual-reality ride, the Warner Bros. Family Entertainment Center, the Golden Eye, which at 130 meters will be Asia's
highest Ferris wheel, a 30,000 sq. foot Family Entertainment Center for kids, the House of Magic, a 5,000-seat Studio City
Entertainment Center for live entertainment, a fully-operational TV broadcast studio, Pacha Nightclub, and an exotic jungle
river-themed water ride, among other things.
Figure-8: Macau GGR per Visitor Figure-9: Macau GGR per Visitor, Growth
Source: Government of Macao Special Administrative Region Statistics and
Census Service.
Source: Government of Macao Special Administrative Region Statistics and
Census Service.
In 2014, Macau’s number of visitors increased by 7.5% to 31.53 million but GGR declined by 2.6%. This contrasts to
2013, when tourist arrivals increased by just 4.4%, but GGR increased by 18.6%. So, the number of visitor arrivals is not
52.2% 52.2% 53.8% 51.7% 51.3% 53.8%
47.8% 47.8% 46.2% 48.3% 48.7% 46.2%
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
Same-day Visitors Overnight Visitors
-7.9%
14.9% 15.6%
-3.8%
3.8%
12.6%
-2.0%
14.7%
8.4%
5.0%
5.1%
2.1%
-10%
-5%
0%
5%
10%
15%
20%
2009 2010 2011 2012 2013 2014
Same-day Visitors Overnight Visitors
3.6
5.3
6.8 7.3
7.9
6.5
1.8 2.0 2.5 3.2
4.0 4.3 5.3
7.3
9.3
10.5
11.9 10.8
0
2
4
6
8
10
12
14
2009 2010 2011 2012 2013 2014
VIP Mass Market Total
HK$ ('000)
14.1%
48.0%
28.9%
7.2% 8.3%
-17.1%
19.1% 16.1%
21.4%
29.7%25.5%
5.8%15.7%
37.5%26.8%
13.2% 13.6%
-9.4%
-20%
-10%
0%
10%
20%
30%
40%
50%
2009 2010 2011 2012 2013 2014
VIP Mass Market Total
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indicative of GGR growth. The Macau Government Tourist Office now expects tourist arrivals to increase by 5% in 2015.
However, we think this is overly conservative, given Macau’s newly added gaming capacity, hotel rooms and other attractions
in 2015 and also since in the past the Macau Government Tourist Office has been overly conservative in its forecasts (actual
visitor growth in 2014 of 7.5% was higher than the Macau Government Tourist Office expectations of less than 5% growth
when they made their forecast in January 2014.)
The number of visitors from PR China increased by 14.1% in 2014 while the number of visitors from Hong Kong and
Taiwan decreased. Improved travel infrastructure including high speed rail has made it easier and more convenient for
mainlanders from further away provinces to travel to Macau. The proportion of mainlanders increased by 3.9 ppt last year to
67.4% of Macau’s visitors. The number of visitors from Hong Kong and Taiwan declined by 5.0% and 4.7%, respectively. We
expect the number of visitors from mainland, Taiwan and Hong Kong to increase in 2015 as more people come to see
the new casinos and attractions opening this year.
Figure-10: Macau Visitors by Place of Origin, Growth Figure-11: Macau Visitors by Place of Origin, % of Total
Source: Government of Macao Special Administrative Region Statistics and
Census Service.
Source: Government of Macao Special Administrative Region Statistics and
Census Service.
As travel infrastructure continues to improve, including more high speed rail, more and more mainland visitors are
coming from further away provinces. In 2014, mainland visitors from Northwest China increased the most, up 23.9% yoy,
followed by a 23.6% increase in visitors from Northeast China. More direct flights connecting Macau to mainland cities
including Tianjin, Xian and Shijiazhuang also helped support travel from far away provinces. Guangdong was still the
dominant source of visitors, but the proportion of total mainland visitors from Guangdong province decreased by 0.5 ppt in
2014 to 49.5%.
Figure-12: PRC Visitors by Region, % of Total Figure-13: PRC Visitors by Region, Growth
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Note*: South Central China includes Guangdong, Hunan, Hubei, Henan and, Guangxi;
East China includes Fujian, Zhejiang, Jiangsu, Shanghai, Jiangxi, Shandong and Anhui;
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Note*: South Central China includes Guangdong, Hunan, Hubei, Henan and, Guangxi;
East China includes Fujian, Zhejiang, Jiangsu, Shanghai, Jiangxi, Shandong and Anhui;
-5.4%
20.4%22.2%
4.6%
10.2%14.1%
-4.1%
11.0%
1.6%
-6.6% -4.4% -5.0%
-1.8%
0.0%
-6.0%
-11.8%-6.6%
-4.7%
-5.1%
14.8%
12.2%
0.3%
4.4%7.5%
-20%
-10%
0%
10%
20%
30%
2009 2010 2011 2012 2013 2014
Mainland China Hong KongTaiwan, China Total
50.5% 53.0% 57.7% 60.2% 63.5% 67.4%
30.9% 29.9%27.1% 25.2% 23.1% 20.4%
5.9% 5.2% 4.3% 3.8% 3.4% 3.0%12.6% 11.9% 10.9% 10.8% 10.0% 9.2%
0%
20%
40%
60%
80%
100%
2009 2010 2011 2012 2013 2014
Mainland China Hong Kong Taiwan, China Other
66.9% 63.5% 63.3% 62.9%
20.9% 20.9% 20.8% 20.5%
5.0% 6.8% 6.6% 7.0%4.1% 4.3% 4.5% 4.9%
0%
20%
40%
60%
80%
100%
2011 2012 2013 2014
South Central China East ChinaNorth China Northeast ChinaSouthwest China Northwest China
12.4%11.7%
19.6%23.6%
8.9%
23.9%
-10%
0%
10%
20%
30%
40%
50%
2012 2013 2014
South Central China East ChinaNorth China Northeast ChinaSouthwest China Northwest China
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North China includes Beijing, Hebei, Shanxi, Inner Mongolia and Tianjin;
Northeast China includes Liaoning, Heilongjiang and Jilin; Southwest China includes Sichuan and Chongqing;
Northwest China includes Shaanxi.
North China includes Beijing, Hebei, Shanxi, Inner Mongolia and Tianjin;
Northeast China includes Liaoning, Heilongjiang and Jilin; Southwest China includes Sichuan and Chongqing;
Northwest China includes Shaanxi.
Figure-2: PRC Visitors by Province/Municipality and by Region, % of Total 2011 2012 2013 2014
Province/Region Guangdong 56.2% 52.0% 51.0% 49.5%
Fujian 6.4% 5.3% 4.9% 5.0%
Hunan 3.7% 3.9% 4.1% 4.1%
Zhejiang 3.9% 4.1% 4.0% 3.8%
Hubei 2.8% 3.2% 3.4% 3.7%
Jiangsu 3.0% 3.1% 3.2% 3.2%
Shanghai 3.2% 3.3% 3.3% 3.0%
Henan 1.9% 2.1% 2.3% 2.8%
Guangxi 2.3% 2.4% 2.5% 2.8%
Jiangxi 2.0% 2.2% 2.3% 2.5%
Sichuan 2.0% 2.2% 2.4% 2.2%
Beijing 2.2% 2.1% 2.2% 2.1%
Hebei 1.1% 1.5% 1.5% 1.9%
Liaoning 1.7% 1.7% 1.8% 1.9%
Helongjiang 1.2% 1.4% 1.5% 1.7%
Shandong 1.2% 1.4% 1.7% 1.7%
Chongqing 1.2% 1.3% 1.4% 1.4%
Anhui 1.2% 1.4% 1.4% 1.4%
Shanxi 1.0% 1.4% 1.3% 1.4%
Jilin 1.1% 1.2% 1.1% 1.3%
Shaanxi 0.0% 1.0% 1.0% 1.1%
Inner Mongolia 0.0% 0.8% 0.8% 0.8%
Tianjin 0.7% 0.8% 0.8% 0.8%
Region*
South Central China 66.9% 63.5% 63.3% 62.9%
East China 20.9% 20.9% 20.8% 20.5%
North China 5.0% 6.8% 6.6% 7.0%
Northeast China 4.1% 4.3% 4.5% 4.9%
Southwest China 3.2% 3.5% 3.7% 3.6%
Northwest China 0.0% 1.0% 1.0% 1.1% Source: Government of Macao Special Administrative Region Statistics and Census Service. Note*: South Central China includes Guangdong, Hunan, Hubei, Henan and, Guangxi;
East China includes Fujian, Zhejiang, Jiangsu, Shanghai, Jiangxi, Shandong and Anhui; North China includes Beijing, Hebei, Shanxi, Inner Mongolia and Tianjin;
Northeast China includes Liaoning, Heilongjiang and Jilin; Southwest China includes Sichuan and Chongqing;
Northwest China includes Shaanxi.
In 2014, 49.4% of Macau’s visitor arrivals entered at the Gongbei Border crossing in Zhuhai. Of all Macau visitors, 55.2%
arrived by land, 38.3% by ferry boat and only 6.5% by air. A number of infrastructure projects have just been completed,
others are still under works or being planned and are slated to complete from 2015 to 2039 which will make for easier access
to Macau. The expanded capacity for handling incoming travelers will help shorten time at the borders and encourage more
tourist arrivals.
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Table-3: Macau Visitors by Entry Point
2009 2010 2011 2012 2013 2014
NUMBER OF VISITORS
Gongbei Border Gate 10,624 12,024 14,161 13,591 14,250 15,574
Other land 825 1,063 1,139 1,239 1,568 1,816
By land 11,449 13,087 15,300 14,830 15,817 17,390
Outer Harbour 5,998 6,462 7,125 7,042 7,072 7,363
Inner Harbour 284 350 474 541 503 473
Provisional Ferry Terminal in Taipa 2,403 3,431 3,422 3,902 3,982 4,244
By sea 8,685 10,244 11,021 11,485 11,558 12,081
Airport 1,584 1,612 1,656 1,739 1,907 2,027
Heliport (Outer Harbour) 35 22 26 29 43 28
By air 1,619 1,634 1,682 1,768 1,950 2,055
Total 21,753 24,965 28,002 28,082 29,325 31,526
GROWTH
Border Gate -5.3% 13.2% 17.8% -4.0% 4.9% 9.3%
Other land -5.9% 28.9% 7.1% 8.8% 26.5% 15.8%
By land -5.3% 14.3% 16.9% -3.1% 6.7% 9.9%
Outer Harbour -17.5% 7.7% 10.3% -1.2% 0.4% 4.1%
Inner Harbour -22.0% 23.6% 35.2% 14.2% -7.0% -5.9%
Provisional Ferry Terminal in Taipa 56.3% 42.8% -0.3% 14.0% 2.1% 6.6%
By sea -5.3% 18.0% 7.6% 4.2% 0.6% 4.5%
Airport -2.9% 1.7% 2.8% 5.0% 9.6% 6.3%
Heliport (Outer Harbour) 1.9% -36.3% 14.7% 12.1% 49.9% -34.7%
By air -2.8% 0.9% 2.9% 5.1% 10.3% 5.4%
Total -5.1% 14.8% 12.2% 0.3% 4.4% 7.5%
% OF TOTAL VISITORS
Border Gate 48.8% 48.2% 50.6% 48.4% 48.6% 49.4%
Other land 3.8% 4.3% 4.1% 4.4% 5.3% 5.8%
By land 52.6% 52.4% 54.6% 52.8% 53.9% 55.2%
Outer Harbour 27.6% 25.9% 25.4% 25.1% 24.1% 23.4%
Inner Harbour 1.3% 1.4% 1.7% 1.9% 1.7% 1.5%
Provisional Ferry Terminal in Taipa 11.0% 13.7% 12.2% 13.9% 13.6% 13.5%
By sea 39.9% 41.0% 39.4% 40.9% 39.4% 38.3%
Airport 7.3% 6.5% 5.9% 6.2% 6.5% 6.4%
Heliport (Outer Harbour) 0.2% 0.1% 0.1% 0.1% 0.1% 0.1%
By air 7.4% 6.5% 6.0% 6.3% 6.6% 6.5%
Source: Government of Macao Special Administrative Region Statistics and Census Service.
Recent Infrastructure Improvements
Starting from Sept. 2014, Mainlanders can use an electronic pass to cross the border into Macau in seconds at
“e-channels”. A test-pilot program began in May last year allowing Guangdong residents to obtain and use an electronic
pass (“e-pass”) to enter Macau. By July, 2014, the number of e-passes in use to cross Macau’s borders had reached 200,000,
four times more than the 50,000 permits recorded in June. By August, 117 e-channels were in use at the Gongbei border gate.
The new e-pass is an ID card embedded with an electronic integrated circuit chip that stores travelers’ personal data. The
period of validity for an adult permit will be extended to 10 years, while the validity period for juveniles under the age of 16 will
remain five years.
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Gongbei (also called Border Gate) border crossing opening hours were extended by two hours on Dec. 18, 2014, now
open from 6:00 a.m. to 1:00 a.m. (7:00 a.m. to 12:00 a.m. previously). The Gongbei Border crossing tends to be the most
congested on Monday to Friday mornings until around 9:00 a.m. as in addition to tourists and gamers, workers and students
from mainland pour into Macau. The earlier 6:00 a.m. opening time eases the congestion to some extent and makes wait
times shorter, an obvious plus for gamers.
Lotus Bridge Hengqing Port border crossing opening hours were extended to 24 hours on Dec. 18, 2014 (open from
9:00 a.m. to 8:00 p.m. previously). The Lotus Bridge border crossing at Hengqing Port (known as the Cotai Frontier
Checkpoint on the Macau side) links Macau’s Cotai Strip with Henqing Island in Zhuhai, Guangdong. Given that in 2014, 49.5%
of mainland visitors to Macau were from Guangdong, we expect the new operating hours will bring more Guangdong visitors
to the city. As another benefit, the 24 hour border makes it more convenient for Macau visitors who would prefer to stay at the
less crowded hotels in Hengqin instead in Macau. Lotus Bridge is increasingly becoming an important access point to the new
casinos in Coatai, since according to Legislative Assembly member Chan Meng Kam, traffic on the three bridges connecting
the Macau Peninsula with Cotai has nearly reached capacity. However, the impact of the extended Hengqing Port border
hours will be limited as Hengqin Port’s capacity is much smaller than that of the Gongbei Border crossing; daily average
customs clearances reach 100,000 passengers at Hengqin Port compared to daily capacity of 350,000 at the Gongbei Border.
From Dec. 18, 2014, Zhuhai-Macau Cross-Border Industrial Zone border checkpoint’s operating hours were extended
to 24 hours but only for Macau residents, non-resident workers and students. The extended hours will help alleviate
pressure on the city’s transportation infrastructure and can significantly divide the passenger flow during the morning rush
hour. However, the Industrial Zone Border Checkpoint is not open to tourists, and we don’t expect it to have too much impact
on Macau visitation growth.
Catalysts – Infrastructure, Casino & Hotel Development
Planned Infrastructure Improvements
We believe the Macau Intercity Light Rail Transit (expected to partially
open in 2017) is a critical development as it will ease inter-city traffic
congestion, a key concern among locals who want to cap the number
of mainland visitors. When completed, the Macau Intercity Light Rail
Transit (LRT) will run through the Macau Peninsula, Taipa and Cotai and
access major border checkpoints such as the Gongbei Border crossing, the
Outer Harbor Ferry Terminal, the Lotus Bridge and the Macau International
Airport. It will also provide a convenient way to travel to all the major casino
destinations both in the Macau Penninsula and in Cotai. After a number of
delays, the new start date for only phase one of the LRT is now expected to
be September 2017, according to the Transportation Infrastructure Office.
Macau and Taipa will not be linked before 2018 or 2019.
Of all the infrastructure projects, we think the Macau Intercity Light Rail
Transit is the most important. As discussed in our “Challenges & Risks”
section, the Macau government is planning to cap the number of visitors
allowed to Macau in order to prevent overcrowding and congestion in the city.
New and expanded border crossings won’t do much good in driving
incremental visitation to Macau if Macau’s inter-city infrastructure is
insufficient to handle more visitors.
Figure-14: Macau Intercity Light Rail
Transit System
Source: Macau Transportation Infrastructure Office.
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Another key project is the Pac On ferry terminal (which could open as early as this year, but probably later) which will
add capacity of up to 15 million passengers per year (more than the total 12.1 million passengers who entered Macau
by ferry in 2014). We think this will have a large impact in increasing visitation to Macau since in 2014, 38.3% of all visitors
came by ferry. The MOP3.2 billion (US$400.8 million) Pac On (also called Taipa) Ferry Terminal is set to become Macau’s
largest ferry terminal. Construction began in 2005 and was first intended to be up and running by 2007, but has been delayed
several times. The Pac On Ferry Terminal could be opened by as early as this year, but given the Macau government’s track
record of infrastructure project delays, we would be surprised if it were ready by this year. However, a scaled down temporary
ferry terminal, located just beside the final Pac On ferry terminal’s construction site, has serviced Taipa since 2007.
We expect the HK-Zhuhai-Macau Bridge (expected to be completed in 2017 or 2018) will have a significant impact in
increasing visitation to Macau since a large portion of Macau visitors come through Hong Kong (20.4% in 2014). The
under-construction Hong Kong-Zhuhai-Macau Bridge is a series of bridges and tunnels that will connect the west side of Hong
Kong to Macau and to the mainland Chinese city of Zhuhai. It will shorten the distance from Hong Kong to Macau from 60 km
to 30 km, and reduce the journey time to from ~3 hours currently to 1/2 an hour, for an estimated charge of RMB100-150 each
way. Construction began on 15 December 2009. After a series of delays, it will most likely be further delayed until 2017 or
even later, said Li Chunhong, the director general of Guangdong’s Development and Reform Commission, according to the
South China Morning Post.
Zhuhai-Macau New Channel pedestrian border crossing in IIha Verde could start construction as early as this year
and be ready by 2016. The new 24 hour pedestrian border crossing would have capacity of up to 250,000 crossings per day,
rivaling the 350,000 daily capacity at the Gongbei Border crossing. The New Channel was first announced in May 2012, and is
to be located at the North-West end of Macau, just 800 meters from the Gongbei Border crossing at the North-East end of
Macau. The New Channel crossing would be for pedestrians only and not have facilities for vehicles. The completion date has
not been determined but construction is expected to begin this year. Obstacles to construction remain, including that currently
there is a wholesale market at the proposed location of the crossing which would have to be relocated. We think this border
crossing, if completed, will have a huge impact on easing congestion at the Gongbei border and thus increase
visitation to Macau.
Macau International Airport expected to increase capacity by 33% to 50% from 6 million to 8 or 9 million passengers
per year in 2018. The Macau International Airport Company (CAM) will launch construction on an expansion to the airport this
year, according to contruction-post.com. CAM had previously announced plans to increase airport capacity by extending the
passenger terminal. CAM expects the expansion to be completed in 2018, increasing airport capacity from 6 million
passengers per year currently to 9 or 10 million. However, the current capacity for planes hasn’t been saturated; there were
only 2 million arrivals at the Macau Airport in 2014. The expansion is expected to allow for more airlines and flight routes. We
think the airport expansion is Macau’s least important infrastructure project since 1) only 6.4% of visitors arrived via the airport
in 2014; and 2) only 2.0 million visitors arrived to Macau via the airport in 2014, meaning that current airport capacity of 6
million is more than sufficient.
Table-4: Macau Planned Infrastructure Projects
2014 Capacity
Planned
Capacity
Completion
Date
Macau Intercity Light Rail Transit 0 n.a. 2017
Pac On (Taipa) Ferry Terminal n.a. 41,000 / Day 2015, Earliest
HK-Zhuhai-Macau Bridge n.a. n.a. 2017 / 2018
Zhuhai-Macau New Channel Pedestrian Border n.a. 250,000 / Day Undetermined
Macau International Airport 6 million / Year 8 to 9 mn / Year 2018
Source: Guotai Junan International.
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Planned Casino Development
In 2015, approximately US$7.3 billion in new casino development is planned to come into operation, increasing the
number of gaming tables by 17.5% and the number of casino hotel rooms by 18.9%. Galaxy Macau Phase II along with
Broadway at Galaxy Macau are expected to open on May 27 with 500 gaming tables and 1,350 hotel rooms. Then in 3Q15,
Melco Crown (MPEL US) will open its Studio City with around 500 gaming tables and 1,600 rooms. Historically, Macau’s
gaming revenue has increased as new gaming and hotel capacity was added, and we expect that the new capacity this year
will also drive GGR sequential growth.
From 2015 to 2017, US$29 billion in new development is planned to open, which would increase the current number
of gaming tables by 56.3% and the number of hotel rooms by 19.5%. Slot machines would increase by 65.9% from year
end 2014 to 2017. 2016 will be another big year with Wynn Macau, Sands China Louis XIII and MGM China all expected to
open their new casino resorts in Cotai. Finally, being last to Cotai, SJM is planned to open its Lisboa Palace in 2017.
Table-5: Macau Gaming Tables, Slots Machines and Hotel Rooms, 2012-2017F
2012A 2013A 2014A 2015F 2016F 2017F
Total Growth 2014 to 2017
14-17 CAGR
Gaming Tables 5,485 5,750 5,711 6,711 8,227 8,927 56.3% 16.1% yoy Growth 3.5% 4.8% -0.7% 17.5% 22.6% 8.5%
Slot Machines 16,585 13,106 13,018 15,518 20,593 21,593 18.4% 18.4% yoy Growth 3.3% -21.0% -0.7% 19.2% 32.7% 4.9%
Casino Hotel Rooms 13,859 16,690 16,790 19,960 26,660 28,660 19.5% 19.5% yoy Growth 35.2% 20.4% 0.6% 18.9% 33.6% 7.5%
Source: Gaming Inspection and Coordination Bureau Macao SAR, Government of Macao Special Administrative Region Statistics and Census Service.
Table-6: Macau Planned Development Timeline
Expected Opening
Developer Project Name Current Status
Investment (US$ bn)
Casino Tables
Slots Hotel
Rooms
27 May 2015 Galaxy Ent. (00027 HK)
Broadway at Galaxy Macau
Under Renovation
US$1.1 0 0 320
Mid 2015
Galaxy Ent.
(00027 HK)
Galaxy Macau
Phase II
Under
Construction US$3.0 500 1,000 1,250
3Q15
Melco Crown
(MPEL US)
Studio City
(Melco Crown)
Under
Construction US$3.2 500 1,500 1,600
2015 Total Additions:
US$7.3 1,000 2,500 3,170
1H 2016
Wynn Macau (01128 HK)
Wynn Palace Under Construction
US$4.1 550 1,000 1,700
2016
Sands China (1928 HK)
The Parisian Macao (Sands)
Under Construction
US$2.7 350-450 2,500 3,300
Mid 2016 Louis XIII Hds. (00577 HK)
Louis XIII Under Construction
US$1.0 66 75 200
Fall 2016
Mgm China (02282 HK)
MGM Cotai Under Construction
US$2.9 500 1,500 1,500
2016 Total Additions:
US$10.7 1,516 5,075 6,700
2017 Total Additions:
SJM Hds. (00880 HK)
Lisboa Palace (SJM)
Under construction
US$3.9 700 1,000 2,000
Not Set
Galaxy Ent. (00027 HK)
Galaxy Macau Phases 3 & 4
Site investigation
US$6.4-US$7.7 90 270 3,500
Total Additions:
US$29.0 3,306 8,845 15,370
Source: Guotai Junan International, the companies: Wynn Macau (01128 HK), MGM China (02282.HK), Sands China (01928 HK), SJM (00880 HK), Galaxy
Entertainment (00027 HK), Louis XIII Hds. (00577 HK) and Melco Crown Entertainment (06883 HK). Note*:Galaxy Macau Phases 3 & 4 gaming tables, slot machines and hotel rooms are Guotai Junan International estimates.
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Table-7: Macau Total Number of Casinos by Company, 2012-2017F
Operators 2012 2013 2014 2015F 2016F 2017F
S.J.M. (00880 HK) 20 20 20 20 20 21
Sands China (01928 HK) 4 4 4 4 5 5
Galaxy (00027 HK) 6 6 6 7 7 7
Wynn Macau (01128 HK) 1 1 1 1 2 2
Melco Crown (06883 HK) 3 3 3 4 4 4
MGM China (02282 HK) 1 1 1 1 2 2
Louis III Holdings 0 0 0 0 1 1
TOTAL 35 35 35 37 41 42 Source: Gaming Inspection and Coordination Bureau Macao SAR.
Casino hotel room supply to increase by 18.9% in 2015, alleviating a
major growth bottleneck. With virtually no increase in casino hotel room
supply in 2014, occupancy rates at casino hotels remained at near full
capacity in 2014. For each of Wynn Macau, Galaxy Macau, MGM China and
Melco Crown, casino occupancy rates were all above 95% in each of the
first three quarters of 2014. Even the occupancy laggard, SJM, had a very
high occupancy rate of over 90% in 3Q14. The new casino hotel room
capacity to be added this year will allow more overnight visitors, and will
allow overnight visitors to stay longer. We believe this, combined with the
additional gaming capacity, will be a key driver for Macau gaming revenue.
Figure-15: Macau Occupancy Rates for
the 6 Casino Operators
Source: Bloomberg, Guotai Junan International.
Note*: Guotai Junan International estimates for SJM.
Challenges & Risks
The Macau government is making plans to cap the number of mainland tourists to control traffic congestion and
overcrowding. According to Macau’s Secretary for Social Affairs and Culture, some Macau residents are not happy about
overcrowding and traffic congestion caused by mainland visitors, and the Macau government plans to soon discuss the issue
with mainland’s central government. It has been reported in the local media that there has been discontent among some of the
locals about the number of visitors, many from mainland China, causing congestion in some parts of the city, especially during
peak travel seasons. No cap has yet been decided and limits could vary for different seasons of the year. As a result, there
could be new limitations on visas for mainlanders to Macau.
We expect Beijing’s low GDP and M2 growth targets for 2015 will have a negative effect on Macau GGR. Beijing sets
China’s 2015 GDP growth target at 7.0%, lowest target in over 15 year. M2 growth for 2015 has been targeted at just 12%,
which is lower than last year’s target of 13% and suggests there’s no plan for big stimulus this year. During the National
People's Congress in early March, Premier Li Keqiang said that China’s economy would face even more formidable difficulties
this year than in 2014.
Table-8: Beijing’s Targeted GDP and M2 Growth, 2010-2015
2010 2011 2012 2013 2014 2015
GDP yoy (%)
Target 8.0 8.0 7.5 7.5 7.5 7
Actual 10.4 9.3 7.7 7.4 7.4
M2 Money Supply yoy (%)
Target 17.0 16.0 14.0 13.0 13.0 12
Actual 19.7 13.6 13.8 13.6 12.2
Source: National People’s Congress, National Bureau of Statistics of China, Guotai Junan International.
80
85
90
95
100
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14
Wynn Macau Sands ChinaGalaxy Macau Melco Crown Ent.MGM China SJM*
%
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No end in sight to China’s intensifying anti-corruption campaign. The fifth plenary session of the Communist Party of
China's Central Commission for Discipline Inspection (CCDI) concluded on January 14. At the plenary session, Wang Qishan,
a member of the 7-man Politburo Standing Committee as well as the secretary of the CCDI, made a presentation of the work
report "Rule of Law in Accordance with Regulations Governing Party to Unswervingly Promote Clean Government and
Combat Corruption". The work report was passed by the CCDI’s 125 members and sets as targeting senior officials, state
firms and fugitives abroad as the 2015 anti-graft priorities. On January 13, Premier Xi Jinping delivered a speech at the
plenary session emphasizing the need to actively expand and deepen the fight against corruption. Xi pointed out that although
the anti-corruption campaign made considerable progress in 2014, the government must further push forward its battle
against corruption comprehensively and leaving nothing off limits in order to foster an environment where officials don’t even
dare or want to engage in corruption. During the NPC / CPPCC joint session in Beijing in early March, Premier Li Keqiang said
that “our tough stance on corruption is here to stay… our tolerance for corruption is zero.”
October 6, 2014 smoking ban is negatively impacting GGR. Under the current smoking ban, which went into effect on
October 6, 2014, smoking is allowed only in private VIP gaming rooms and on the main gaming floor in enclosed smoking
rooms that do not contain any gaming tables or slot machines (electronic cigarettes, however, are not restricted). In their 4Q14
earnings call, Melco Crown (MPEL US) indicated that the smoking ban is reducing the average time that smokers play, since
they have to stop gambling and go to a smoking lounge every time they want to smoke, and less time spent gambling has a
direct negative impact on gaming revenue. I think this phenomenon applies to all Macau casinos and not just to Melco Crown.
Full smoking ban likely to be passed by 2016 would include an end to smoking in casino VIP rooms and the removal
of existing airport-style enclosed smoking lounges. Macau’s Secretary for Social Affairs and Culture announced that the
government would propose a bill that would fully ban smoking inside casinos, including VIP rooms. The bill is not likely to be
passed until after Aug. 15, if passed at all, and would include stiffer fines for individuals smoking in banned areas (currently
the fine ranges from MOP400 to MOP600). The proposed new ban would mean that smoking would no longer be allowed
anywhere in the casinos and would have a detrimental effect on total gaming revenue. During Wynn Macau (01128 HK)’s
4Q14 earnings call, chairman Stephen Wynn indicated that he believes the bill will eventually be passed. On January 27,
Macau’s largest labour group, the Macau Federation of Trade Unions announced that it would petition the government to ban
smoking from VIP rooms and end smoking lounges on mass casino floors. According to www.ggrasia.com, Tang Chi Ho,
director of the Tobacco Prevention and Control Office of Macau’s Health Bureau said that a full ban on smoking in all casinos
is likely by 2016. The ban is expected to include an end to smoking in Macau casino VIP rooms and the removal of existing
airport-style enclosed smoking lounges.
We think the continued crackdown on illegal use of China UnionPay in Macau will have limited impact on GGR; in
2014, illegal use of China UnionPay in Macau amounted to MOP784 million (US$98.2 million), which is equivalent to
just 0.2% of Macau’s total 2014 GGR. The Macau government continues to crack down on illegal use of unregistered China
UnionPay terminals. Mainlanders are only allowed to take a daily limit of RMB20,000 (US$3,188) out of mainland China in
cash. Gamblers routinely circumvent this by buying jewellery and watches in Macau with UnionPay and immediately returning
the goods for MOP cash which they can use for gambling; this transaction is not illegal as long as the UnionPay terminal is
registered in Macau. However, it is illegal if the UnionPay terminal is “unregistered” (unregistered in Macau but instead
registered in mainland China). These registered in mainland China terminals are illegally smuggled into Macau, allowing
payments to be recorded as domestic transactions within the PRC, therefore being charged lower fees.
With the crackdown on illegal use of China UnionPay, VIP and premium mass gamblers can continue to use junket
credit and mass gamblers can continue to use the legally registered UnionPay terminals. There is usually a 3% to 5%
fee for using UnionPay in Macau, making it an expensive option for transferring a large amount of money out of China. A
cheaper and more convenient way is to borrow MOP in Macau from junkets and then settle up in RMB after returning to
mainland, thereby avoiding the need to transfer cash into Macau. Of course, this method only applies to VIP and premium
mass gamblers.
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Macau Gross Gaming Revenue
In 2013, Macau GGR per P.R. China national was equivalent to just 15.8% of U.S. GGR per U.S. national. Macau’s 2013
GGR (US$45.2 bn) was 6.9 times that of the Las Vegas Strip (US$6.5 bn) but equivalent to just 67.7% of total U.S. gaming
revenue (US$66.7 bn); we think this implies further growth potential for Macau. To get an idea of growth potential, we look at
total gaming revenues in the U.S. and Macau divided by the total populations of the U.S. and the PRC. We find that in 2013,
the U.S. had US$210 in gaming revenue per U.S. person; in Macau, there was US$33 in gaming revenue per PRC person,
equivalent to just 15.8% of the U.S figure. Of course this is not an apples-to-apples comparison since the U.S. has local
casinos throughout the country (compared with PRC where casinos are legal only in Macau) and higher disposable incomes
per capita. Still, we think it is an indicator that there is further growth potential in Macau’s gaming sector. However, while hotel
room supply and travel infrastructure (bridges, border crossing, Macau intercity travel, etc.) continue to improve in Macau, they
will always force a cap on Macau’s GGR growth potential.
Macau’s total GGR declined by 2.6% in 2014, the first decline since the industry’s opening up in 2002. However, there
was a huge difference between the VIP and Mass Market segments, and also between the first quarter and the last three
quarters.
With the central government’s ongoing anti-corruption campaign, Macau’s VIP GGR fell by 10.9% in 2014. Sequentially,
VIP GGR showed qoq declines in the first two quarters followed by positive qoq growth in 3Q14 and 4Q14. The 2014 drop in
VIP GGR was the second year with negative growth since the sector’s opening up in 2002, the first being in 2005 when VIP
GGR declined by just 3.1%. The VIP segment suffered through 2014 as the Chinese government continued and even
accelerated its anti-corruption campaign, which we expect to continue indefinitely with no let up in sight. With the plunge in
VIP GGR, the number of licensed junkets (gaming promoters) in Macau decreased by 15.6% in 2014. The total number of
junkets fell from 217 in January 2014 to just 183 by year end, according to public broadcaster Rádio Macau.
Mass market GGR increased by 13.7% for full year 2014, but declined qoq from 2Q14 through 4Q14. Factors negatively
affecting the mass segment were China’s slowing GDP growth along with virtually no new gaming or casino hotel room
capacity in 2014. In addition, the premium mass segment suffered along with the VIP segment. 4Q14 was a disaster for the
mass segment when its GGR plunged by 18.2% qoq, the steepest drop on record going back to 1Q05.
Figure-16: Macau Total, VIP and Mass GGR Growth
(Annual)
Figure-17: Macau Total, VIP and Mass GGR qoq Growth
(Quarterly)
Source: Gaming Inspection and Coordination Bureau of Macao SAR. Source: Gaming Inspection and Coordination Bureau of Macao SAR.
Macau’s GGR was up 2.0% mom in January 2015, but hopes that the sector had bottomed out were dashed in
February when GGR crashed 17.7% mom. February’s mom plunge was especially bad, considering that it was the month of
the Chinese New Year. From 2008 to 2014, GGR has on average increased by 6.4% mom in the month of the Chinese New
Year. February GGR was the lowest it’s been since January 2011, when GGR was MOP18,571 million.
57.8% 42.2%
13.5% 18.6%
-2.6%
33.3%
36.1%
30.0% 31.0%
13.7%
69.9%
44.6%
7.5%13.1%
-10.9%-20%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010 2011 2012 2013 2014
Total Gross Gaming Revenue GrowthMass Market Gaming Revenue GrowthVIP Market Gaming Revenue Growth
5.7%
2.4%
11.6%
12.2%
5.4%
-2.4%
-0.4%
-18.2%
0.3%
-16.0%-14.4%
-1.5%
-19.6%
-7.2%
2.0%4.1%5.5%
1.0%
3.5%
12.3%
2.1%
-11.1%-8.8% -8.8%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14
Mass Market Gaming Revenue Growth (qoq)VIP Market Gaming Revenue Growth (qoq)Total Gross Gaming Revenue Growth (qoq)
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Figure-18: Macau Total, VIP and Mass GGR Growth
(Annual)
Figure-19: Macau Total, VIP and Mass GGR qoq Growth
(Quarterly)
Source: Gaming Inspection and Coordination Bureau of Macao SAR. Source: Gaming Inspection and Coordination Bureau of Macao SAR.
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
120%
-
5
10
15
20
25
30
35
40
No
v/0
8
Ap
r/09
Sep
/09
Feb/1
0
Jul/10
Dec/1
0
May/…
Oct/11
Mar/
12
Aug
/12
Jan
/13
Jun
/13
No
v/1
3
Ap
r/14
Sep
/14
Feb/1
5
GGR (L) YoY (R) MoM (R)
HK$ Billion
-60%-50%-40%-30%-20%-10%0%10%20%30%40%50%
-
5
10
15
20
25
30
35
40
GGR (L) YoY (R) MoM (R)
HK$ Billion
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Our 2015 Macau GGR Forecasts
We forecast Macau GGR qoq growth for 1Q15 to 4Q15 of -16.9%, -4.0%, 5.7% and 8.1%, respectively; this works out
to a 2015 full year decline of 27.2%. With the Chinese government’s ongoing and intensifying anti-corruption campaign, low
GDP and M2 growth targets from Beijing, likely expansion of the smoking ban and likely cap on the number of mainland
visitors, we except Macau GGR growth to continue to be under pressure sequentially throughout 2015, showing flat
sequential growth except for when new casino hotel room or gaming table capacity is added.
Our 1Q15 qoq GGR growth forecast of -16.9% is equivalent to a 38.5% yoy decline due to high comparison base in
1Q14. Macau GGR hit its all time high in 1Q14 of HK$99.2 billion, making for a tough comp in 1Q15. Combined 2015 Jan. and
Feb. GGR declined 35.1% yoy and we are forecasting flat qoq growth for March.
Our 2Q15 qoq GGR growth forecast of -4.0% is equivalent to a 33.6% yoy decline due to high comparison base in
2Q14. US$2.5 billion Galaxy Macau Phase II is expected to add 500 gaming tables, 1,000 slot machines and 1,250 five-star
hotel rooms on May 27, 2015. This translates to a 9.4% increase in Macau’s casino hotel room supply and an 8.8% increase
in Macau’s total gaming table capacity, which we expect to attract more gamblers to Macau, driving GGR gains. However, the
new capacity will only be open for a portion of 2Q15.
Our 3Q15 qoq GGR growth forecast of 5.7% is equivalent to a 23.0% yoy decline. Growth will benefit qoq as Galaxy
Macau Phase II will be open for the full 3Q as opposed to being open for just a fraction of 2Q.
Our 4Q15 qoq GGR growth forecast of 8.1% is equivalent to an 8.8% yoy decline. Melco Crown will open its Studio City
sometime in 3Q15 with around 500 gaming tables and 1,600 rooms (I assume it does not open until the end of 3Q15). This
translates to an 8.7% increase in Macau’s casino hotel room supply and an 8.1% increase in Macau’s total gaming table
capacity on top of the already higher capacity from Galaxy Macau Phase II.
Figure-20: Macau Total GGR Growth (qoq) Figure-21: Macau VIP and Mass GGR Growth (qoq)
Source: Gaming Inspection and Coordination Bureau of Macao SAR, Guotai
Junan International.
Source: Gaming Inspection and Coordination Bureau of Macao SAR, Guotai
Junan International.
2.1%
-11.1%-8.8% -8.8%
-16.9%
-4.0%
5.7%8.1%
-20%
-15%
-10%
-5%
0%
5%
10%
1Q14 2Q14 3Q14 4Q14 1Q15F2Q15F3Q15F4Q15F
Total Gross Gaming Revenue Growth (qoq)
5.4%
-2.4%-0.4%
-18.2%
-12.6%
0.7%
10.6%12.8%
0.3%
-16.0%-14.4%
-1.5%
-19.6%
-7.2%
2.0%4.1%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
1Q14 2Q14 3Q14 4Q14 1Q15F2Q15F3Q15F4Q15F
Mass Market Gaming Revenue Growth (qoq)
VIP Market Gaming Revenue Growth (qoq)
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APPENDIX
Macau Gaming Historical Development
Macau, the only jurisdiction in P.R. China where casinos are allowed, has more casinos than any other region in Asia
and has been the world’s largest gaming destination in terms of gross gaming revenue since 2006. The Macau Special
Administrative Region of the PRC, with total area of only 28.2 sq km, was established on 20 December 1999 after more than
400 years of Portuguese administration. Located on the western side of the Pearl River Delta, 60 km across from Hong Kong
to the east, bordered by Zhuhai in Guangdong province to the north and facing the South China Sea to the east and south,
Macau is the only area in China where casinos are allowed by the government.
STDM monopolized gaming from 1962 to 2002. Gaming was formally legalized in Macau in 1847. By the 1850s, there were
more than two hundred “Fantan” stalls operating in Macau. By the late 19th century, gaming tax had already become the
government’s main source of income. In 1930, “Hou Heng Company” won Macau’s first casino gaming monopoly concession,
which was subsequently granted to “Tai Heng Company” in 1937 and expired at the end of 1961, when the concession
became open for public bidding. With only the incumbent “Tai Heng Company” and a new company, Sociedade de Turismo e
Diversões de Macao (STDM), bidding, STDM won the bidding and obtained the monopoly concession in 1962. For the next
40 years, STDM monopolized Macao’s gaming market.
In 2012, 88% of Macau’s GDP and 83% of Macau’s total public revenue came from gaming revenue. The government
will collect about MOP140 billion (US$17.5 billion) in taxes and other levies on gaming in 2013, according to calculations by
the Portuguese news agency Lusa using data for the 12 months ended on November 30. Lusa forecasts that the 35 percent
direct tax on gross gaming revenue will bring in about MOP124.4 billion and other indirect taxes will bring in about MOP14.2
billion. Additionally, casino operators paid around MOP1 Bn in licensing fees for gambling tables and slot machines in 2013.
Macau casinos are in the Macau Peninsula and Cotai. Macau consists of four segments: 1) the Peninsula (9.3 sq. km) in
the North, which borders Zhuhai, China; the Southern “islands” of 2) Taipa and 3) Coloane, which aren’t really separate
islands anymore since they are unified by 4) Cotai (5.6 sq. km.), the reclamation area connecting the two “islands”. Three
bridges link the Peninsula to Taipa. Macau’s casinos are all in the Peninsula, the historical gaming center, and Cotai, the new
gaming center still under development.
Figure-1: Macau Geography
Source: Globe-trotter macao-map.svg.
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Macau gaming opened up with the end of STDM’s gaming monopoly in 2002. STDM’s concession expired on 31
December 2001, and Macao had decided to grant out three gaming concessions in an open bidding process in order to further
the development of the industry. There were a total of 21 bidding proposals received, out of which concessions were granted
to Sociedade de Jogos de Macau (“SJM” 00880 HK, a subsidiary of STDM), Galaxy Casino, S.A., and Wynn Resorts (Macao)
S.A. in February 2002. Macau subsequently permitted each of Galaxy, SJM and Wynn Macau to grant sub-concessions to
MGM Grand Paradise S.A. (in April 2005), Venetian Macao S.A. (in Dec. 2002) and Melco Crown Jogos (Macau) S.A. (in Sept.
2006), respectively. Currently, there are a total of six concession/sub-concession holders: SJM Holdings (00880 HK), Galaxy
Entertainment (00027 HK), Wynn Macau (01128 HK), Sands China (01928 HK), MGM China (02282 HK) and Melco Crown
Entertainment (06883 HK and MPEL US).
Table-1: Macau Casino Timeline History
1847 Portuguese colonial government legalizes gambling in Macau.
1930 The Hou Heng Company wins a monopoly concession for operating all games of chance.
1937 Casino monopoly awarded to Tai Heng Company, which introduces baccarat to Macau.
1962 Macau government awards monopoly concession to Sociedade de Turismo e Diversões de Macao (STDM).
1970 Casino Lisboa (STDM) opens.
2002 Casino gaming concession awarded to Sociedade de Jogos de Macau, which is now owned by SJM Holdings (“SJM” 00880 HK).
2002 Casino gaming concession awarded to Galaxy Casino, S.A., which is now owned by Galaxy Entertainment (“Galaxy” 00027 HK).
2002 Casino gaming concession awarded to Wynn Resorts (Macao) S.A., which is now owned by Wynn Macau (01128 HK).
2002 Galaxy permitted to sell sub-concession to Venetian Macao S.A., which is now owned by Sands China (01928 HK).
2004 Sands Macao opens, the first American-run casino in Macao.
2004 Galaxy Entertainment opens its first casino, Galaxy Waldo.
2005 SJM sells sub-concession to MGM Grand Paradise, which is now owned by MGM China (02282 HK).
2006 Wynn sells sub-concession to Melco PBL (currently Melco Crown Gaming), now owned by Melco Crown Ent. (06883 HK and MPEL
US).
2006 Melco Crown Entertainment acquires Mocha slot lounges.
2006 Grand Waldo (Galaxy Entertainment) opens.
2006 Wynn Macau opens.
2007 Melco Crown Entertainment opens Crown Casino (now Casino Altira).
2007 MGM Grand Macau opens.
2007 Grand Lisboa casino opens (SJM).
2007 Venetian Macao (Sands China) opens.
2009 City of Dreams (Melco Crown Entertainment) opens.
2010 Encore Macau (Wynn Macau) opens.
2012 Sands Cotai Central Phase I opens in April 2012
2012 Sands Cotai Central Phase II A opens in September 2012,
2013 Sands Cotai Central Phase II B opens in January 28, 2013,
2014 No new casinos opened. Source: University of Las Vegas Center for Gaming Research, the Companies, Guotai Junan International.
Macau (sort of) limits number of casino table additions through 2023 to total of 1,400 (7,150 total tables in operation).
Since 2012, the Macao Gaming Inspection and Coordination Bureau has set a table cap on the total number of casino gaming
tables allowed in Macao. Each of the six casino concessionaires is allotted a certain fixed amount of tables, and must get
approval to add more tables. However, the cap has proven to be flexible, since the total table cap was set at 5,500 through the
end of 2013, when in actuality the number of tables increased to 5,750. The cap will expand by 1,400 tables to 7,150 tables by
2023. The incremental cap is set to be liberally applied such that new tables will be allotted from the total number that will
accrue by 2023 rather than be strictly rolled at fixed quantities per year that could hold back the opening of new casinos.
Casinos are finding ways to circumvent the table cap. For example, double-tables (or ‘Siamese’ baccarat tables) feature
two dealers handling twice the normal number of players, but because each dealer uses a common drop box, it only counts as
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a single table. Another is ‘Fast Action Baccarat’ (FAB) tables. The seven-meter-long, three-meter-wide, semi-automated FAB
tables feature 28 betting stations capable of handling up to 60 players simultaneously. Operators can also decrease the
number of tables at old casinos to make room for more tables at new casinos. Planned development through 2018 (see next
paragraph) would add ~3,770 new tables, far surpassing the 1,400 table addition limit. However, I think that as long as the
industry supply-demand balance is healthy, bureaucrats will be flexible with enforcement of the cap rule. Moreover, casino
operators will find ways to circumvent it.
Figure-2: “Siamese” Baccarat Table
Source: www.gamingfloor.biz.
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Company Rating Definition
The Benchmark: Hong Kong Hang Seng Index
Time Horizon: 6 to 18 months
Rating Definition
Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable.
Accumulate Relative Performance is 5% to 15%;
or the fundamental outlook of the company or sector is favorable.
Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral.
Reduce Relative Performance is -5% to -15%;
or the fundamental outlook of the company or sector is unfavorable.
Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.
Sector Rating Definition
The Benchmark: Hong Kong Hang Seng Index
Time Horizon: 6 to 18 months
Rating Definition
Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable.
Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral.
Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable.
DISCLOSURE OF INTERESTS
(1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report.
(3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812), China All Access (Holdings) Limited (00633), Guangshen Railway Company Limited-H shares (00525), Guotai Junan International Holdings Limited (01788) and Binhai Investment Company Limited (02886), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer
mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with MGM China (02282 HK) / Galaxy
Entertainment (00027 HK) / Wynn Macau (01128 HK) / Melco Crown Entertainment (MPEL US) / SJM Holdings (00880 HK) / Sands
China (01928 HK) mentioned in this Research Report within the preceding 12 months.
DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities
(Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).
Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or
be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does
not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredic table and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks,
and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located
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