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Global gaming
Reality check
In 2011, we believe investors will place more emphasis on LV than in prior years
given the return of the convention market and improving US consumer
sentiment. While Asian gaming will still be important, we believe that the 50-70%
multiple re-rating in the gaming stocks over the last five months has created
some aggressive expectations for companies such as Wynn Macau and Genting
Singapore. We prefer Sands China, Galaxy and Alliance Global.
Las Vegas – Returning to recovery, value in LVS US
Las Vegas Sands is our top pick in the universe. Our US gaming team notes that
the current price implies a 2012E EV/EBITDA multiple of 8.0x, which is a
discount to Wynn‟s US operations (at 9.9x) and historical growth multiples of 10-
12x. We are also positive on LVS‟s Macau subsidiary, Sands China. One risk we
see is the bullish expectations for Singapore‟s gaming market, which we think
can be offset by selling Genting Singapore.
We are increasingly optimistic on Las Vegas, with YTD visitation and gaming
revenues having risen by 2.6% and 4.5%, respectively. With a more optimistic
view of the 2011 convention calendar, a stable airline carrier schedule and
continued strength in baccarat revenues, we believe LV Strip gaming revenues
can reach US$6.1bn. More important, we think non-gaming spending should
show a greater improvement, based on consumer spending patterns.
Macau – Need to incorporate concession risk
In our view, Macau gaming stocks are increasingly regarded as Chinese consumer
plays, but we see one big issue that investors may not be considering: concession
risk. As explained in our report – Making sense of valuations. We see the market
as either assuming bullish concession outcomes or aggressive growth
assumptions, both of which we believe are risks. In addition, as growth rates slow
in 2011 and market shares shift, we think the growth multiples will be tested.
We have applied a new valuation framework to derive concession values for
each of the companies and valuations for respective Cotai projects. Having done
this, we think that the market is factoring in overly optimistic outcomes for Wynn
Macau and SJM, while expectations for Sands China and Galaxy appear overly
conservative. Given Sands China and Galaxy‟s exposure to Cotai and their early
mover advantage, we believe they will present investors with higher returns.
Singapore - 2011 growth may disappoint consensus
Consensus expectations for 2011 gaming market growth are 33% above the 3Q10
annualised number. This seems aggressive given the 5% GDP growth in
Singapore, new regional property openings and the end of the “novelty factor” for
local patrons. We are forecasting market growth of c.20%. Approval of Macau style
junkets could be a positive surprise, but we don‟t expect this to occur in 2011.
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