Buffet's Checklist On Macau Gaming

Macau gaming
Sector outlook - Overweight

The group of companies that comprise CLSA are affiliates of Credit Agricole Securities (USA) Inc.
For important disclosure information please refer to page 80.
Produced by Produced by Produced by

CLSA
Aaron Fischer, CFA
Head of Consumer/Gaming Res
aaron.fischer@clsa.com
(852) 26008256
Richard Huang
(852) 26008455

Credit Agricole Securities (USA)
Jon Oh
(1) 212 261 3865

15 November 2012
Global
Hotels & Leisure

BUYs

Galaxy 27 HK
Market cap US$14.8bn
Up/downside +21%

Las Vegas Sands LVS US
Up/downside +36%

Melco Crown MPEL US
Market cap US$8.1bn
Up/downside +37%

MGM China 2282 HK
Market cap US$6.7bn
Up/downside +37%

MGM Resorts MGM US
Market cap US$4.8bn
Up/downside +43%

Sands China 1928 HK
Up/downside +16%

SJM 880 HK
Up/downside +35%

Wynn Macau 1128 HK
Up/downside +20%

Wynn Resorts WYNN US
Up/downside +16%

www.clsa.com

Buffett's checklist
Macau scores 8/10 on key criteria

Prepared for EV: Jolin.Majmin@gemstarcapital.co.uk

Macau gaming

2 aaron.fischer@clsa.com 15 November 2012
Contents
Executive summary ............................................................................ 3
Macaus winning scorecard ................................................................ 4
Top performers ................................................................................ 20
Annualised average return of 20% to 2016 ...................................... 32
Best way to play Chinese consumption ............................................ 36
Company profiles
Galaxy ....................................... 43
Las Vegas Sands ........................ 47
Melco Crown ............................... 51
MGM China ................................. 55
MGM Resorts ............................. 59
Sands China ............................... 63
SJM ........................................... 67
Wynn Macau ............................... 71
Wynn Resorts ............................ 75

Covered by Credit Agricole Securities (USA) Inc.
All prices quoted herein are as at close of business 8 November 2012, unless otherwise stated
Game for growth


Executive summary Macau gaming

15 November 2012 aaron.fischer@clsa.com 3

Buffett's checklist
After years of explosive growth, Macaus gaming sector is on the cusp of a major
transformation from which it will emerge as a solid yield play. Given gamings
high-risk reputation, we are concerned that conservative investors may miss out
on what we see as a Raining cash opportunity. Indeed, our analysis suggests that
even Warren Buffett, the ultra-safe Sage of Omaha, would score Macau highly on
his well-known investment checklist. Our top picks are Melco Crown, SJM, Wynn
Macau and Las Vegas Sands.
Macau scores eight out of 10 on our Buffett-inspired scorecard, which draws
on his key investment criteria. The gaming enclave has a straightforward
business model with wide economic moats, excellent earnings visibility, high
ROEs, robust balance sheets, disciplined capital management, strong free-
cashflow generation and generous dividends. The sector also has a wide
margin of safety on valuations, trading on a dividend of 5% relative to the
markets 3%.
We analyse nine gaming companies under our coverage individually to see how
they fare. Most companies do well, but the better performers - Sands China,
Wynn Macau, MGM China and SJM - pay high dividends and have heavier
exposure to the mass market and nongaming, as well as lower capex
requirements. A lack of dividends hurts Melco Crown and Galaxy, but they have
the strongest potential growth. Note that these are not stocks that Buffett has
purchased or plans to purchase. They are simply stocks that meet the criteria
that Buffett has emphasised.
Like the market, we value Macau stocks on a sum-of-the-parts methodology,
applying an EV/Ebitda multiple to earnings from existing operations and adding a
discounted-cashflow-derived fair value for future projects. However, we believe a
dividend-yield derived valuation would now be better, as growth investors leave
the sector and yield investors look to take their place. The market will take some
time to view the sector in a different light, as it will only happen after it is
confident in dividend sustainability - we are not there yet. Using this alternative
methodology, we value stocks on yield, which would result in an average four-
year annualised return of 12-23% to 2016.
As detailed in our recent Still raining cash report, we believe the Macau gaming
sector is the best way to gain exposure to the rising Chinese middle class. In
light of slower top-line growth, we would own the sector for dividend yield and
the gradual pricing in of Cotai projects. Overlaying our Buffett-style analysis with
valuations supports our BUY ratings.
Buffett-style analysis
Warren Buffetts stock-picking criteria
1
Our Macau scorecard
1 Is the business simple and understandable? 6
2 Is there an economic moat protecting the business? 9
3 Is management candid with shareholders? 8
4 Does the business have long track record of earnings growth? 5
5 Does the business have a consistent operating history? 8
6 What is the rate of "owner earnings"? 9
7 Is it rational with managing capital? 9
8 Is the focus on return on equity? 9
9 Does the business avoid excess debt? 9
10 Does the valuation offer a margin of safety? 8
Average score 8
1
The Warren Buffett Way, Robert Hagstrom; The New Buffettology, Mary Buffett and David Clark
Macaus winning
scorecard
Top performers
Annualised average
return of 20% to 2016
Best way to play
Chinese consumption
Expect an investor
rotation from growth
to yield
Macau scores eight out of
10 on our Warren-Buffett-
inspired scorecard

Section 1: Macaus winning scorecard Macau gaming


Macaus winning scorecard
The gaming sector has a very wide economic moat with only six operators
being granted licences. This greatly reduces competition inside Macau.
External competition from around the region is also light, with few
governments legalising full-scale casinos aside from Singapore.
Gaming companies generate about two-thirds of earnings from mass market
and nongaming businesses, which is easy to understand given that casino
mathematics ensure stable returns over time. Arguably, some parts of VIP
play have proven to be more volatile but this is a smaller share of earnings.
The Macau government has implemented a limit on supply of gaming tables.
Slow project approvals support the industrys strong pricing power (minimum
table bets, room rates and retail rents). Limited expansion has meant that
revenue growth has slowed sharply as casino properties are running at full
capacity. Yet, a stable cost environment allows for excellent medium-term
earnings visibility. Under-investment has led to a huge swing in the industrys
financial position, from potential bankruptcy to massive cash piles.
Companies have been remarkably disciplined by focusing investments on
core areas of expertise, ie, Macau casinos. Firms are returning excess
cash to shareholders and we expect dividend payout ratios of 80-100%
for four of the six companies.
The Macau gaming sector generates the highest returns among all sectors
in Asia, with an estimated 12CL ROE of 33%.
Investment criteria
1. Is the business simple and understandable?
Just as Buffett favours simple and understandable businesses, so do we. Macau
gaming companies are straightforward with around two-thirds of earnings
derived from casino, hotel and retail operations. VIP is less transparent and
accounts for two-thirds of revenue, but only one-third of the industry Ebitda.
Figure 1
Macau gaming: Revenue and Ebitda breakdown by segment, 2012

Source: CLSA Asia-Pacific Markets
67
38
28
53
5
10
0
10
20
30
40
50
60
70
80
90
100
Revenue Ebitda
VIP Mass gaming Non-gaming (%)
Easy to understand
VIP accounts for two-
thirds of revenue but only
one-third of Ebitda
Macau gaming should be
a simple enough business
Macau scores eight out of
10 on our Warren-Buffett-
inspired scorecard



Figure 2
Ebitda breakdown by segment, 2012

Casino operations
Each casino game entails a different house advantage, with the average
advantage for Baccarat of 1.24%, Blackjack of 2%, Roulette of 5.26%, Craps
of 1.0% and Caribbean Stud of 5.47%. The casino theoretical win depends
not only on the house advantage but also the players average bet size and
average length of stay. So it is critical for the casino to keep the players
playing. Calculation of the casino theoretical win can be summarised as
following.
Theoretical win = Average bet x hours played x decisions per hour x house
advantage (on the VIP side, this is the Baccarat).
Casino games are games of probability and the theoretical win could deviate
from the actual win of the casino. Outcomes of the casino games can be
represented by the normal distribution curve, in which the actual win/loss of a
certain gaming table could be volatile depending on the luck factor.
Figure 3
Normal distribution curve

Source: CLSA Asia-Pacific Markets, NY State Education Department
54
62 63
46
56 57
54
44
41
33 18
14
21
10
3
3
13
8
13
20
23
33 34
41
43 44
51
0
10
20
30
40
50
60
70
80
90
100
MGM
Resorts
Las
Vegas
Sands
Sands
China
Wynn
Resorts
Melco
Crown
MGM
China
SJM Wynn
Macau
Galaxy
Mass Non-gaming VIP (%)
Different house
advantages for various
casino games
Calculation for
theoretical win
Win/loss of a gaming
table could be volatile
depending on luck factor
MGM Resorts, LVS and
Sands China have the
highest exposure to mass
gaming and nongaming



Outcomes at the gaming tables could be volatile and thus it is important for
casinos to manage volatility, which could be done in three major ways:
By increasing overall business volume. Based on the law of large
numbers, as the number of bets per hand at any given level wager increases,
the actual outcome will move closer to the expected outcome. To illustrate,
we have compared the historic VIP win rate of the two Sands China casinos -
Venetian Macao and Four Seasons Macao.
Historically, Venetian has benefitted from the huge amount of gaming volume
running through the casinos which lowered win-rate volatility. While in Four
Seasons, the amount of play is lower and thus results in a more volatile VIP-
win rate. In the past nine quarters, standard deviation of the VIP-hold rates
at Venetian was at 0.29% (versus 0.65% at Four Seasons).
Figure 4
VIP win rate
(%) 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Four Seasons Macao 3.07 3.08 1.55 3.90 2.25 2.90 2.61 2.83
Venetian Macao 3.36 3.05 2.99 2.69 3.46 2.66 2.95 2.93
Note: VIP win rate is defined as VIP net win divided by VIP rolling chip turnover;
Figure 5 Figure 6
VIP win rates Standard deviation of VIP win rates

Reduce risk exposure. Casinos can limit their risk exposure by setting a
maximum betting limit, which forces more hands to be played at any given
bankroll.
Shifting or sharing risk. Revenue-share arrangements with Macau junket
operators (at predetermined percentages of 40-45%) versus a rolling
programme can also reduce earnings volatility.
The casinos have a fairly simple cost structure:
The gaming tax is the largest component at 39% of the gross gaming
revenue. This is very high relative to other markets (eg, Singapore at 16-
17%, Las Vegas at 7%) and we do not see a high risk of the tax increasing.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12
Four Seasons Macao Venetian Macao (%)
0.65
0.29
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Four Seasons Macao Venetian Macao (%)
Four Seasons has a more
volatile VIP win rate
Volatility can also be
reduced by setting max.
bet and using revenue
sharing commissions
Macau casinos have a
simple cost structure



The second-largest cost component is the junket commission, which is 40-
45% of the gross VIP revenue (not mass market revenue). There is
agreed maximum commission cap of 1.25% and therefore we do not
expect this to increase.
Other operating expenses include staff costs, utilities, advertising and
promotion costs.
The mass market generates margins of about 40% while VIP is around 10%
due the inclusion of junket commissions.
Figure 7
Mass market vs VIP margin

Hotel operations
Hotel operations are simple, with the company charging a fee for hotel-room
usage. With the strong inflow of visitors into Macau, hotel operators have
enjoyed high hotel occupancy of more than 90% and have been able to
charge high hotel room rates of US$200-300 per night.
Figure 8
Macau hotels, 1H12
Hotel Occupancy rate (%) Average room rate (US$)
Altria 97.0 210
MGM Macau 97.3 270
Wynn Macau 90.7 321
Grand Lisboa 92.9 276
City of Dreams 90.0 181
The Venetian 90.1 242
Sands Macao 93.5 247
Four Seasons 77.8 359
HK$1.11
HK$1.74
HK$1.25
HK$0.49
HK$1.11
Win rate = 2.85%
To operator 61%
Gaming tax 39%
Operating expenses
Ebitda 40%
Win rate = 2.85%
To operator
Junket commission
Operating expenses
Ebitda 10%
Gaming tax 39%
Mass market
VIP
HK$100 HK$2.85
HK$1.14
HK$0.6
HK$100 HK$2.85
HK$0.29
HK$0.2
Ebitda margins are much
wider in the mass market
gaming segment
Most hotels have
occupancy rates
over 90%



Retail operations
Some of the major Macau casinos such as Wynn Macau, Four Seasons Macao,
Venetian Macao and City of Dreams have large retail shopping areas in their
integrated resorts. The retail segment generates revenue by charging the
tenants fixed rent or turnover-based rent. In 2011, Sands Chinas retail
properties generated HK$12bn in retail sales and HK$1.3bn in rental income,
which is largely in line with what Times Square, a premium shopping mall in
Hong Kong, generates.
Figure 9
Sands China retail properties: Valuation
Sands China retail
properties
Harbour City Time Square
2011 retail sales (HK$b) 11.8 25.4 10.0
Leasable area (sf) 608,450 974,000 468,000
2011 annual retail sales per sf (HK$) 19,474 26,052 21,291
2011 annual rental income (HK$m) 1,318 3,248 1,124
2011 annual rental income per sf (HK$) 2,165 3,335 2,402

2011 Retail sales at Harbour City and Time Square are calculated by assuming 25% retail sales growth,
which is in line with the overall market. Assume 50-60% of the GFA is leasable area; NAV of Harbour
City and Time Square are based on property team estimate; Source: CLSA Asia-Pacific Markets; Wharf
2010 annual report
VIP and other elements
VIP gaming is perceived as the black box of the Macau gaming market, with
the junkets assuming a key role in the gaming operations. The key reason for
the existence of the VIP gaming market is because of the currency
restrictions that the Chinese Central government imposes, limiting currency
movement into and out of the country. With such restrictions, most VIP
players have to rely on junket credit to fund their gaming expenditure. China
also lacks a robust credit database, which prohibits casinos to directly extend
credit to players and thus creates opportunities for the junkets.
Some perceive Macau as a sin city and a place for corrupt government
officials to launder money. But in fact, over the past decade, we have not had
any gaming company prosecuted for any crimes or violating the anti-money
laundering control procedures. In fact, some of the worlds most prestigious
financial institutions have been charged with greater and more frequent
financial crimes than the global gaming companies.
Over the past 10 years, the number of criminal offences in Macau has
remained low. In 2011, 12,500 crimes were recorded, representing a crime
rate of only 2.5%.
Figure 10
Macau: No. of crimes cases

500
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1,000
1,100
1,200
1,300
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(No.)
12,500 crimes recorded in
2011, representing a
crime rate of 2.5%
VIP market existed due to
Chinese governments
policy to restrict capital
flow in and out of the
country
Sands retail assets vs
top-tier shopping
malls in Hong Kong



Comparing Macaus crime rate with that of the major cities in the USA, Macau
at 2.5%, is extremely low. Indeed, it is the lowest among all major US cities
and is significantly lower than the 4% in Las Vegas.
Figure 11
Crime rates

Source: CLSA Asia-Pacific Markets, FBI, HK Police
2. Is there an economic moat protecting the business?
. . . [the] most important thing to me is figuring out how big a moat there
is around the business. What I love, of course, is a big castle and a big
moat with piranhas and crocodiles.
Warren Buffett
Macau gaming operators are protected by a strong moat, with only six
gaming licences issued there. We understand that the government has no
intention of issuing additional permits which creates a very favorable industry
environment for incumbents by installing a strong entry barrier. The fact that
only six gaming licences have been issued. Governments determination to
tame table supply growth and to slow the pace of new project approval are
also key factors in driving gaming companies strong earnings and cashflows.
Further, Macau casino operators do not face much external competition over
the next decade, Macau and Singapore will remain the only two major gaming
destinations in the region, serving billions of Asian gamers. Japan could be
the next meaningful market but will most likely serve the local population
(see our Asias wonderland report). Meanwhile, it is unlikely that the Chinese
government will legalise gaming anywhere within the country, including island
destinations such as Hainan. While Hong Kong would be an enormous market,
we believe the probability of casinos being licensed there is less than 1%.
0 1 2 3 4 5 6 7 8
Hong Kong
Macau
New York
San Diego
Los Angeles
Las Vegas
Phoenix
Philadelphia
Chicago
Dallas
Houston
San Antonio
(%)
. . . and limited external
competition
Crime rate is low in Macau
Limited internal
competition . . .



Figure 12
Macau gaming: Porters five-forces analysis

3. Is management candid with shareholders?
With a long-term investment horizon, Buffett favours companies that are
candid with shareholders. In Macaus gaming industry, analysts and investors
generally enjoy excellent access to CEOs and other senior management over
a period of time. Companies tend to host regular conference calls, attend
investor conferences, host property tours and have strong investor-relations
teams. Being Hong-Kong based, one of our few complaints is that Las Vegas
Sands and Wynn host their conference calls at 4:30am Hong Kong time,
which makes for a long day!
Since we started to cover Macau companies in 2005, the Macau gaming
names have been fairly candid with analysts and shareholders. Companies
update investors on their recent operational performance on a quarterly
basis. Hong Kong-listed companies are obliged only to semi-annual reporting,
but they still voluntarily report quarterly numbers. Quarterly earnings contain
detailed analysis on the financial performance broken down into individual
casino properties and by different business segments. Financial disclosure is
world class in Macau, especially compared to some other Asian gaming
companies such as Genting Singapore, which is weak on disclosure.
Industry competition - Medium
There are competition among the six
casino operators and those which fail
to bring new products to the market
will be prone to market-share loss.
Threat of new entrants - Low
Very unlikely to have another company
entering the Macau gaming sector.
Bargaining power of suppliers
- Medium
Suppliers of gaming tables /
machines do not have strong
bargaining power, but labour is
currently in shortage and employee s
have strong bargaining power.
Bargaining power of customers
- Low
Macau is the only gaming city in China.
Supply shortage endows casino
operator with strong bargaining power.
Threat of substitutes - Low
Online gaming could potentially be
a substitute to casino gaming, but
online gaming is still illegal in most
parts of Asia.
Since covering Macau
companies in 2005, we
believe they have been
honest with analysts and
shareholders




Figure 13
Key operational and financial metrics included in quarterly release
Revenue (broken down by individual casino property)
Ebitda (broken down by individual casino property)
Operating profit
Net profit
Rolling chip volume (broken down by individual casino property)
Rolling chip win rate (broken down by individual casino property)
Non-rolling chip volume (broken down by individual casino property)
Non-rolling chip win rate (broken down by individual casino property)
Slot handle (broken down by individual casino property)
Slot hold rate (broken down by individual casino property)
Number of tables in operation (broken down by individual casino property)
Number of slots in operation (broken down by individual casino property)
Hotel occupancy (broken down by individual hotel)
Hotel room rate (broken down by individual hotel)
Revenue per available room (broken down by individual hotel)
4. Does the business have long track record of earnings growth?
Buffett prefers companies with a long track record of delivering earnings
growth. The Macau casino operators do not score well in this area, as most
only have five years of operating history. US operators, such as Wynn Resorts
and Las Vegas Sands, have a longer operating track record, but their
earnings, historically, has been volatile due to high gearing levels during the
financial crisis. This is unlikely to be repeated in the Macau gaming sector,
with many companies in a net-cash position.
We expect Macau to deliver more consistent earnings growth as VIP gaming
revenue moderates on a high base. With a slowing VIP segment, we are also
seeing increased earnings exposure to the more robust mass-market
segment, which will help lower gaming companies earnings volatility.
Figure 14
Macau gaming revenue/Ebitda growth

(40)
(20)
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VIP revenue Mass gaming revneue Industry Ebitda (%)
Forecast Actual
Mass-gaming revenue
growth has been
consistently at 30-40%
over past three years
A list of key operational
metrics that are disclosed
quarterly
Macau casinos do not
score well on long track
record of earnings growth



5. Does the business have a consistent operating history?
Buffett dislikes companies that expand beyond their comfort zone and favours
those with a consistent operating history. We note that the Macau gaming
operators have, over past years, been very focused on their expertise, which
is to develop gaming properties in Macau or in Asia. This is not true for others
such as the Genting Group in Malaysia, which have been very aggressive in
other industries and other markets.
6. High owner earnings and lack of need to reinvest
Buffett places significant emphasis on cashflow-generating capability and
regards it as the best metric to evaluate the quality of the company. He
favours firms that generate high owner earnings, also known as free
cashflow. We share the same view and have been bullish on Macau gaming
because of its strong free cashflow-generating capability. We were the first
broker to discuss this theme in our Raining cash report in September 2011.
We expect the sector to deliver US$3-4bn of free cashflow in 2012-14,
representing 4-5% FCF yield.
Figure 15
Macau gaming: Free cashflow

Buffett places huge emphasis on cash earnings generated by companies and
gives preference to those where minimal capex is required to maintain
competency. The Macau government has been very helpful by implementing a
table cap of 5,500 tables to March 2013 and allowing about 3-5% growth
thereafter with around 2,000 additional tables by the end of 2022.
Figure 16
Macau gaming tables

(6)
(4)
(2)
0
2
4
6
(4,000)
(3,000)
(2,000)
(1,000)
0
1,000
2,000
3,000
4,000
5,000
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
02A 03A 04A 05A 06A 07A 08A 09A 10A 11A 12CL 13CL 2022
Galaxy Macau Phase II
Macau Studio City
The Parisian
SJM Cotai, MGM Cotai,
Wynn Cotai
(No.)
Maintenance capex
requirement is minimal
Some 2000 additional
gaming tables
by end of 2022
Forecast fee cashflow
generation of US$3-4bn
in 2012-14
The Macau gaming
operators have, over the
past years, been very
focused on their expertise



Comparing the Macau gaming sector with other sectors in Asia, the capex-to-
sales ratio is very low, allowing most of the earnings to flow back to company
shareholders.
Figure 17
Asia capex as share of sales, 2009-11 average

Over the past five years, casino operators have invested US$24bn in the Las
Vegas gaming market, whose revenue is likely to reach US$6bn in 2012 and
remain flat for some time. In Macau, the casino operators have invested
US$18bn in the past five years, with expected gaming revenue of US$39bn in
2012. In other words, Las Vegas has invested 4x the size of the gaming
market versus Macau which has invested only 0.5x the revenue level.
For casino properties that have been completed, maintenance caper required
is also minimal. Not until recently have we seen a slight uptick in
maintenance capes with high capacity utilisation and slightly intensifying
competition. But relative to the Ebitda generated by the casino property,
maintenance capex required is still minimal.
Figure 18
Investments in gaming sectors

Source: DICJ, company data
0 20 40 60 80 100
Luxury
Autos
Internet
Macau gaming
Capital goods
Consumer
Technology
Healthcare
Media
Conglomerates
Materials
Hotels & leisure
Telecoms
Property
Petro/chems
Transport
Infrastructure
Power
(%)
24
18
6
39
0
5
10
15
20
25
30
35
40
Las Vegas Macau
Investment over past five years
Gaming revenue (12CL)
(US$bn)
0.5x
4x
Only US$18bn investment
has been made in Macau



Looking forward to the next round of projects, the capex requirement will not
be too onerous. Macaus gaming companies plan to spend US$2.0-3.5bn on
their next Cotai projects, which looks like a huge figure on the surface. But
the capex spend will span three to four years, implying that the average
annual capex on a new project is around US$0.5-1.0bn. Companies also
normally fund 50-75% of the Cotai expansion by debt financing, which
implies the actual cashflow strain to the company would be even less.
Figure 19
Cotai capex
(US$m) Total capex Avg annual
capex
Avg annual
equity
investment
Adj Ebitda
(2013)
Annual equity
investt as % of
13CL Ebitda
The Parisian (Sands Site 3) 3,000 750 300 2,471 12
Wynn Cotai 3,500 875 350 1,072 33
MGM Cotai 2,500 625 250 673 37
Macau Studio City 2,000 500 200 943 21
SJM Cotai 2,000 500 200 1,064 19
Galaxy Macau Phase II 2,000 500 200 1,355 15
Note: Assume the Cotai projects to take 4 years to build and also to assume 60% of the Cotai capex is to be funded by debt and 40% by equity;
7. Rational with managing capital
Buffett praises companies which return excess cash to investors. Macau
gaming operators score well in this aspect as they return cash generously to
investors by means of dividends. In 2011, SJM, MGM China, Wynn Macau and
Sands China maintained a dividend payout ratio of 80-100%, representing
US$3bn of dividends returned to shareholders.
Figure 20
Dividend-payout ratio
(%) 2009 2010 2011 12CL 13CL 14CL
MGM Resorts 0 0 0 0 0 0
Las Vegas Sands 0 0 0 52 47 54
Wynn Resorts 2,353 658 133 188 133 114
Sands China 0 0 107 100 80 80
Wynn Macau 0 89 106 80 80 80
Melco Crown 0 0 0 0 0 0
Galaxy 0 0 0 0 0 0
SJM 42 54 76 80 80 80
MGM China 0 0 95 80 80 80
The strong dividend payout by gaming companies has been underpinned by
three key factors.
First, the limited supply and strong demand for gaming has shaped a
favorable industry dynamics for casino operators, allowing them to face
minimal internal and external competition and to readily convert revenue
growth into profit growth.
Second, capex requirement of the gaming companies has been low, which
allowed earnings to be converted into free cashflows.
Lastly, senior management of the gaming companies has a very strong
appetite for dividends, which allowed free cashflows to be distributed to
shareholders as dividends.
Strong dividend payout
underpinned by three
key factors
Macau casinos plan to
spend US$2.0-3.5bn in
the next round of
Cotai projects
Macau gaming operators
generously return cash to
investors by means of
dividends
Gearing level was much
higher in 2007-08



Figure 21
Dividend flow

While Sheldon Adelson and Steve Wynn have had disagreements in the past,
they seem to agree on one thing - to pay high dividends - which they have
made clear in recent 3Q12 earnings conference calls.
We believe that companies should make money for their shareholders.
That's the reason we exist. And to create safe, steady, secure jobs for the
people that make the enterprise breathe: our staff. As long as we keep our
staff healthy and safe we'd like to give the shareholders of this company
the maximum benefit possible from the company's operations. And I say
that because so many of us on the board are shareholders, including key
members of management have most of their net worth invested in the
company's stock. So we think like shareholders.
Steve Wynn
I'm focused on delivering growth and maximising shareholder value. I
think our company assumes these goals in four key areas: one, organic
growth in existing properties; two, development growth that's within our
reach today; three, development of integrated reserve locations new to
Las Vegas Sands; and four, return of capital to shareholders through
growing annual dividends. It gives me great pleasure to announce that our
Board of Directors has approved an increase of our recurring quarterly
dividend in 2013 by 40% to US$0.35 per share per quarter or US$1.40 per
year. Let me add that we have every intention of increasing the dividend in
the years ahead as our business and cash flows continue to grow. I can
only say one thing about that, Go Dividend.
Sheldon Adelson
Favourable industry
dynamics allowing
companies to convert revenue
growth into profit growth
Low capex requirement
allowing companies to convert
profits into free cashflow
Management's strong
appetite for dividends allows
free cashflows to be converted
into dividend payments
Revenue
Net profit
Free cashflow
Dividends



8. Generates high return on equity
As a value investor, Buffett likes companies that generate high ROE. The
Macau gaming sector scores well on this front, with its low capex requirement
allowing high ROE. In 2012, we expect the Macau gaming sector to generate
33% ROE, which is the highest among all the sectors in Asia.
Figure 22
Asia: Return on equity, 2012

The high return on equity of the Macau gaming sector has been underpinned
by the respectable investment return generated by Macau casinos. In 2012,
we expect these casinos to generate an investment return of 30-130%.
Figure 23
Casinos: ROIC, 2012

Note: Casinos in Macau are highlighted in yellow, while casinos in Singapore and Las Vegas are
highlighted in Blue; Source: CLSA Asia-Pacific Markets
0 5 10 15 20 25 30 35
Power
Property
Transport
Infrastructure
Media
Insurance
Conglomerates
Capital goods
Materials
Petro/Chems
Telecoms
Financial services
Consumer
Technology
Hotels & Leisure
Healthcare
Autos
Internet
Macau Gaming
(%)
0 20 40 60 80 100 120 140 160
Wynn Las Vegas
Resorts World Sentosa
Venetian Las Vegas (including Palazzo)
Mariana Bay Sands
Altira
Four Seasons
City of Dreams
Galaxy Macau
Venetian Macau
MGM Macau
Wynn Macau
Grand Lisboa
Starworld
Sands Macao
(%)
Sands Macao and
Starworld generate
over 100% ROIC
Casinos in Macau
generated 30-130%
ROIC in 2012
In 2012, we expect Macau
to generate 33% ROE,
which is the highest
among all Asian sectors




9. Avoids excess debt
Buffett prefers a prudent management style and would favour companies that
avoid excess debt. The Macau gaming sector is highly rich in cash. By 2012,
we expect the sector to have a net debt/(cash) as a share of equity ratio of
1%, with three out of the six Macau gaming operators in a net-cash position.
Figure 24
Asia: Net debt/(cash) as a share of equity, 12CL

However, the situation only changed recently with some concerns of
bankruptcy particularly at the US parent company level only a few years ago.
Las Vegas Sands was badly hit during the financial crisis. In 2008-09, the
company had just opened the Venetian Macao and Four Seasons Macao,
while Sands Cotai Central and Marina Bay Sands still remain under
construction. The earnings base of the company was much smaller then,
while net gearing was sky high at 300% in 2007 as project loans were yet
to be repaid. With the low income base and the high interest cost, LVS
recorded two consecutive years of net losses in 2008-09. The share price of
Las Vegas Sands was down 97% from the peak and there were worries
about the company going bankrupt.
10. Current valuation offers margin of safety
Buffett also stresses the importance of a margin of safety, which is the
discount to fair value that the stock is currently offering. We understand the
importance of having a margin of safety and we do not rate a stock a BUY
unless we see more than 20% upside to our fair-value estimate of the stock.
You leave yourself an enormous margin of safety. You build a bridge that
30,000-pound trucks can go across and then you drive 10,000-pound
trucks across it. That is the way I like to go across bridges.
Warren Buffett

(40) (20) 0 20 40 60 80 100
Internet
Technology
Macau Gaming
Healthcare
Insurance
Hotels & Leisure
Media
Capital goods
Consumer
Property
Autos
Telecoms
Petro/Chems
Materials
Conglomerates
Transport
Infrastructure
Power
(62.9)
(%)
102.8
The Macau gaming sector
is highly rich in cash
LVS share price was
down 97% during the
financial crisis
Margin of safety is
the discount to fair value
that the stock is
currently offering



Warren Buffett defines fair value as the discounted value of the cash that can
be taken out of a business during its remaining life. That is different from our
sum-of-the-parts valuation methodology, in which we value the existing
operations on EV/Ebitda and add an additional option value for the upcoming
Cotai project. Historically, EV/Ebitda is used because the gaming companies
incur a large amount of pre-opening cost, noncash cost (depreciation and
amortisation) and interest cost which resulted in a low net profit figure. That
is no longer true, with most of the casino properties fully ramped up and
companies generating strong net profits.
We value the Macau gaming companies based on 10-15x EV/Ebitda. We give
preference to stocks that have: short-term earnings growth; higher exposure
to more defensive mass-market and non-gaming segments; a Cotai or other
growth story; and pay dividends. We score the six Macau operators on these
metrics, with Sands China earning 14 ticks, Wynn Macau 11 and SJM 11.
Figure 25
Macau gaming: Stock selection scorecard
Earnings
growth
Mass-market
exposure
Additional
projects
Dividend Ticks Target
multiple
(x)
Sands China 14 15
Wynn Macau 11 13
SJM 11 11
MGM China 11 11
Galaxy - 8 11
Melco Crown - 8 10
Even if we were to abide to free cashflows and dividends that Warren Buffett
pays most focus to, Macau is still undervalued with their expected free
cashflow yield at 4-5% in 2012-13 (versus Asia consumer of 2-3%) and
dividend yield at 4-5% (versus Asia consumer of 3%).
Figure 26
Valuation comparison
PE (x) FCF yield (%) Dividend yield (%)
2012 2013 2012 2013 2012 2013
Macau Gaming 19.4 16.3 4.8 4.1 4.3 4.9
China Consumer 25.7 19.9 0.7 3.0 1.8 2.1
Asia Consumer 19.2 16.9 1.8 3.3 2.9 3.3
If we were to apply a discounted cashflow (DCF) valuation to the Macau
gaming companies, we still see them as attractively valued. We apply
conservative cashflow growth estimate of 5% pa to forecast the free-cashflow
generation of the existing properties operated by the gaming companies. We
also apply a 10% WACC and a terminal growth rate of 2% to derive the fair
value of the existing casino properties.
Trading at discount to the
consumer sector
Stock selection score card
We value Macau gaming
companies on EV/Ebitda



Figure 27
DCF valuation for existing properties
Wynn
Macau
SJM MGM
China
Galaxy Melco
Crown
Sands
China
Estimated cashflow growth (2014-2023) (%) 5 5 5 5 5 5
Estimated maintenance capex growth (2014-2023) (%) 5 5 5 5 5 5
WACC (%) 10 10 10 10 10 10
Terminal growth rate (%) 2 2 2 2 2 2
DCF fair value for existing operations 26.0 26.9 19.6 39.1 24.4 36.9
Current share price 22.7 17.2 13.7 27.4 15.0 30.5
% discount/(premium) to fair value for existing operations 15 57 43 43 63 21
At current share prices, the Macau gaming operators are still trading at a 15-
63% discount to the fair value of their existing properties, not to mention that
there is still upside potential to the companys fair value as the upcoming
Cotai project start operation. We believe the valuations of the Macau gaming
companies are still attractive at current levels and offer investors a
reasonable margin of safety.
Figure 28
Macau gaming: % discount/(premium) to fair value for existing properties

0 10 20 30 40 50 60 70
Wynn Macau
Sands China
MGM China
Galaxy
SJM
Melco Crown
(%)
Trading at 15-63%
discount to fair value of
existing operations
All six companies
offer reasonable
margin of safety

Section 2: Top performers Macau gaming


Top performers
We analyse nine Macau-related gaming companies under our coverage to see
how they fare according to Buffetts investment criteria. Most score well on
the criteria but the better performers are those with heavier exposure to
mass market and non-gaming, lower capex requirements and pay high
dividends. Wynn Macau, MGM China and SJM score well. A lack of dividends
hurts Melco Crown and Galaxy, but they also have better growth potential.
Figure 29
Our Buffett-style scorecard
Sands
China
Wynn
Macau
Galaxy SJM MGM
China
Melco
Crown
LVS Wynn
Resorts
MGM
Resorts
1 Simple and understandable business 8.0 7.0 6.0 7.0 7.0 7.5 8.0 7.0 8.0
2 Has an economic moat protecting the business 9.0 9.0 9.0 9.0 9.0 9.0 9.0 9.0 6.0
3 Candid with shareholders 8.0 8.0 7.0 7.0 8.0 8.0 8.0 8.0 8.0
4 Long track record of delivering earnings growth 6.0 6.0 5.0 6.0 5.0 5.0 5.0 5.0 4.0
5 Consistent operating history 9.0 9.0 9.0 9.0 9.0 8.0 6.0 6.0 6.0
6 Generates high owner earnings; lack of need to reinvest 9.0 8.0 8.0 9.0 9.0 8.0 8.0 8.0 9.0
7 Rational with managing capital 9.0 9.0 8.0 9.0 9.0 8.0 8.0 9.0 7.0
8 Generates high return on equity 8.0 9.0 8.0 8.0 8.0 6.0 7.0 9.0 4.0
9 Avoids excess debt 8.0 9.0 8.0 9.0 9.0 8.0 6.0 6.0 5.0
10 Current valuation offers margin of safety 8.0 8.0 8.0 9.0 9.0 9.0 9.0 7.0 9.0
Average score 8.5 8.5 7.5 8.5 8.5 7.5 7.5 7.5 6.5
1. Simple and understandable business
When ranking the companies under the simplicity of the business model, we
assess according to the earnings contribution from mass market and non-gaming
(simple) versus VIP (less transparent). As the VIP segment is primarily specific to
Macau, thus the US-listed companies with exposure in the USA, Singapore and
others markets have the lowest exposure to VIP. This is especially true for MGM
Resorts, which has a significant business in Las Vegas, and Las Vegas Sands,
which generates close to half its Ebitda from Singapore and some from Vegas
and Bethlehem. Among the Hong-Kong listed names, Sands China has the lowest
exposure to VIP gaming while Galaxy has the highest.
Figure 30
Ebitda breakdown by segment (2012)

Top scorers: MGM Resorts, Las Vegas Sands and Sands China
54
62 63
46
56 57
54
44
41
33 18
14
21
10
3
3
13
8
13
20
23
33 34
41
43 44
51
0
10
20
30
40
50
60
70
80
90
100
MGM
Resorts
Las
Vegas
Sands
Sands
China
Wynn
Resorts
Melco
Crown
MGM
China
SJM Wynn
Macau
Galaxy
Mass Non-gaming VIP (%)
Of all the gaming
companies, SJM and
MGM China are the
highest scorers
MGM Resorts, LVS and
Sands China have the
highest exposure to mass
gaming and non-gaming
Macau gaming should be
a simple-enough business



2. Economic moats protecting the business
To Buffett, the most important thing is to figure out how big a moat there is
around the business. The Macau gaming operators are protected by a strong
moat, as there are only six gaming licences issued in Macau. The table cap
implemented by the government also limits table supply growth and keeps
industry competition at bay.
As was detailed in The moat report, the definition of an economic moat is
simple: having a durable competitive advantage which over time will lead to
return ratios that can remain above cost of capital. The return ratios we focus
on are ROE and ROIC. Businesses with ROE and/or ROIC above their relevant
cost of capital are creating positive EVA
, ie, economic value added. High

levels of profitability generally attract competition which drives down the
returns. However, companies with a franchise have a durable edge to ward off
competitors and thus are able to maintain high return ratios.
We believe economic value added (EVA
) is a good proxy to size of the

economic moat protecting the business. Among the peer group, Sands China
is the company with the widest moat. We expect Sands China to generate an
economic value added of US$1.6bn in 2013.
Figure 31
Economic value added, 2013

Top scorers: Sands China
3. Candid with shareholders
Generally, all the companies are fairly proactive with meeting with analysts
and investors. Among Chairmen and CEOs, Sheldon Adelson (Sands), Steve
Wynn (Wynn), Jim Murren (MGM), Lawrence Ho (Melco Crown) have been
best while we rarely hear from Galaxy Deputy Chairman, Francis Lui.
Gaming companies have been weaker at guiding on the approval timing of the
upcoming Cotai projects. The Macau gaming operators were targeting to
receive the Cotai approval around a year ago, but most of them did not
receive it recently. To be fair, the poor guidance on the approval timing of the
Cotai project rests partly on the governments shoulders.
(400) 0 400 800 1,200 1,600
MGM Resorts
Melco Crown
Las Vegas Sands
MGM China
Galaxy
SJM
Wynn Resorts
Wynn Macau
Sands China
(US$m)
(1,543)
The Macau gaming
operators are protected
by a strong moat, as there
are only six gaming
licenses issued in Macau
Sands China generate
the highest EVA

Companies are fairly
proactive with meeting
with analysts and
investors



The gaming companies all offer in-depth financial disclosure, but if one
were to differentiate among the industry group, Las Vegas Sands, Sands
China, Wynn Macau and Wynn Resorts offer the most detailed financial
breakdown in their quarterly release, while SJM is weaker side in terms of
disclosure of financials.
Top scorers: Las Vegas Sands, Sands China, Wynn Macau and Wynn Resorts
4. Long track record of earnings growth
Macau has liberalised its gaming market in 2002, while Singapore issued the
countrys first gaming concession in 2006. Most of the regions flagship
casinos were not opened until 2007. Before the opening, the earnings base of
the gaming companies was much smaller and could be loss making, given the
high interest cost, non-cash cost (like depreciation), pre-opening cost that
need to be incurred before the full ramp up of the casino resort.
Figure 32
Casinos opening date
Casino Opening year
Sands Macao 2004
Wynn Macau 2006
Starworld 2006
Grand Lisboa 2007
MGM Macau 2007
Altira 2007
Venetian 2007
Four Seasons 2008
Ponte 16 2008
City of Dreams 2009
LArc 2009
Oceanus 2009
Wynn Encore 2010
Resorts World Sentosa 2010
Marina Bay Sands 2010
Galaxy Macau 2011
Sands Cotai Central 2012
To identify gaming companies with the longest track record of earnings
growth, we look at Ebitda generated by the casinos over the past 12 years.
On an Ebitda basis, Las Vegas Sands stood out as the company with the
longest track record of earnings growth, with its consecutive growth trend
since 2002. Sands China has also been consistently expanding its Ebitda since
2006, when the company financials become publicly available.
Figure 33
Casino Ebitda
Company Code Ebitda (US$m) Years of
consecutive
earnings growth
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12CL
MGM Resorts MGM US 1,133 1,167 1,117 1,340 1,943 2,384 2,440 1,882 1,107 930 1,557 1,838 2
Las Vegas Sands LVS US 171 156 261 462 665 831 875 1,062 1,086 2,229 3,532 4,044 10
Wynn Resorts WYNN US na na na na 211 391 779 737 746 1,162 1,635 1,547 3
Sands China 1928 HK na na na na na 457 512 671 798 1,189 1,548 1,880 6
Wynn Macau 1128 HK na na na na na 44 316 405 418 758 1,017 991 5
Melco Crown MPEL US na na na na na na (37) 157 56 430 810 877 3
Galaxy 27 HK na na na na na na 188 70 150 288 625 1,264 4
SJM 880 HK na na na na na na 271 204 293 624 853 965 4
MGM China 2282 HK na na na na na na - 111 149 361 611 657 4
Source: CLSA Asia-Pacific Markets, company data
On Ebitda basis, Sands
China and LVS has the
longest track record of
earnings growth
The Singapore casinos
were only opened in 2010



In addition to the low earnings base, the gaming companies net gearing was
also much higher, as they rely on project loan or bank credit facilities to fund
construction of the casino. Net gearing of the gaming companies declined rapidly
post opening, with Las Vegas Sands net gearing falling form 297% in 2007 to an
estimated of 53% in 2012, while Wynn Macau, SJM and MGM China has moved
from a net debt position in 2008 to net cash position in 2012.
Figure 34
Net debt to equity ratio
(%) 2006 2007 2008 2009 2010 2011 12CL
MGM Resorts 342 190 351 326 413 126 132
Las Vegas Sands 177 297 157 83 84 65 53
Wynn Resorts 105 127 218 64 103 120 na
Sands China 130 239 258 52 48 17 29
Wynn Macau (27) (21) 736 74 26 (11) (22)
Melco Crown na (9) 30 63 55 37 11
Galaxy na (9) 9 28 53 39 6
SJM na (16) 13 (1) (34) (61) (52)
MGM China na na 1,199 1,888 268 (30) (32)
The earnings track record of the gaming companies is weaker on net profit
basis. Gaming companies gearing level has historically been quite high with
many of the major integrated resorts under construction including projects in
Macau, Singapore (eg Marina Bay Sands), and Las Vegas (eg MGMs
CityCentre). Most of the gaming companies have a much lower earnings base,
with net profit significantly impacted by the high pre-opening and interest
cost. Sands China has the longest track record of earnings growth with its net
profit on consecutive growth for five years. Wynn Macau and SJM came in
second by growing their net profit continuously for four years in a row.
Figure 35
Casino net profit
Company Code Net profit (US$m) Years of
consecutive
earnings growth
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 12CL
MGM Resorts MGM US 170 292 244 412 443 648 1,584 (855) (1,292) (1,437) 3,115 (536) na
Las Vegas Sands LVS US 8 (12) 67 495 284 442 117 (189) (540) 407 1,270 1,779 2
Wynn Resorts WYNN US na na na na (91) 629 196 210 21 160 613 528 2
Sands China 1928 HK na na na na na 376 196 174 216 678 1,119 1,219 4
Wynn Macau 1128 HK na na na na na 758 178 265 267 571 760 829 5
Melco Crown MPEL US na na na na na na (178) (2) (308) (11) 292 395 1
Galaxy 27 HK na na na na na na (60) (1,470) 68 233 388 940 3
SJM 880 HK na na na na na na 198 103 139 459 685 833 4
MGM China 2282 HK na na na na na na na (38) (22) 202 423 541 2
Source: CLSA Asia-Pacific Markets, company data
Top scorers: Wynn Macau, Sands China and SJM
5. Consistent operating history
We assess each company one by one. Sheldon Adelson (Chairman and CEO of
Las Vegas Sands) founded the company in 1988 after having successfully
founded the computer trade show, Comdex, in 1979. Sheldon opened his first
casino resort - Venetian Las Vegas in 1999, which turned out to be a huge
success. Sheldon then brought his vision to Macau, where he was awarded a
casino concession in 2002. He soon understood the enormous potential for
gaming in Asia when the Sands Macao yielded over 100% investment return
in its first year of operations in 2004. Sheldon then took on ambitious
development plans in Asia by constructing Venetian, Four Seasons and Sands
Sands China, Wynn Macau
and SJM have the longest
track record of net
profit growth
Las Vegas Sands opened
its first casino in LV in
1999 and moved into
Asia in 2004
Gearing level was much
higher in 2007-08



Cotai Central on the Cotai Strip and also to develop Marina Bay Sands in
Singapore. The financial crisis has impacted the development timeline of
these projects, but they were all eventually opened in 2007-12 and have all
turned out to be huge success, yielding investment returns in excess of 20%.
Steve Wynn, founder of Wynn Resorts, designed and built some of the most
famous properties in Las Vegas including The Mirage, Bellagio, Treasure
Island, and Golden Nugget. When Steves control of Mirage Resorts was
wrestled away by MGM, Steve immediately started his next venture, Wynn
Resorts, by buying Desert Inn on the Las Vegas Strip and constructed Wynn
Las Vegas (US$2.7bn), the most expensive casino ever built up until the
construction of MGMs CityCenter (US$9bn). Given Steves strong track record
in the US, the Macau government offered Steve Wynn a concession in Macau
and Steve Wynn opened the Wynn Macau in 2006. After the split between Las
Vegas Sands and Galaxy that resulted in the creation of a sub-concession,
Steve Wynn sold his sub-concession to Melco for US$900m.
MGM was first founded by Kirk Kerkorian in the 1960s as a casino owner and
operator. Through a series of mergers and acquisitions (Mirage Resorts in
2000 and Mandalay in 2004), the company controlled roughly one-quarter of
gaming revenues on the Las Vegas Strip and owned operations across the US
including Mississippi, Atlantic City (50% of Borgata), and Michigan. In 2005,
in partnership with Pansy Ho (daughter of Stanley Ho, Chairman of SJM),
MGM bought the sub-concession from SJM for US$200m to begin construction
of MGM Grand Macau which opened in 2007.
When in 2002, Caesars missed the bid for a concession in Macau, the company
was offered another chance to buy a stake into Macau. In 2005, Caesars
Entertainment was the largest gaming company in the world (US$10bn in
revenues and nearly 50 casino properties) at the time when Wynn offered to sell
Caesars its sub-concession for US$900m (the only remaining sub-concession
after MGM and Pansy bought SJMs sub-concession for US$200m). However,
Caesars felt the US$900m price tag was too high and ultimately allowed Melco to
acquire the sub-concession. Quickly realizing its mistake, the company reportedly
spent US$580m to acquire a golf course on Macaus Cotai Strip in hopes of
obtaining a casino license later on. However, the company announced in October
2012 that the Macau government has said they will not be issuing any new
licenses to US companies, formally ending Caesars bid in Macau.
Unlike the parentco, we expect the Macau subsidiary of the US gaming
companies to have a very consistent business operations, as they are
bounded by their mandate to focus only on the Greater China region, while
the parent company (ie, Las Vegas Sands, Wynn Resorts and MGM Resorts)
will be the investment vehicle to carry out overseas expansion. With Hong
Kong and China highly unlikely to legalize gaming, the country that the Macau
gaming companies could possibly expand into would be Taiwan.
For the local Macau gaming operators (like SJM, Galaxy and Melco crown),
they are not bounded by a business mandate and can expand overseas if any
attractive investment opportunities prevail. In fact, Melco Crown has recently
announced its plans to expand into the Philippines to develop Belle Grande
Manila jointly with Belle Corp. But for SJM and Galaxy, we believe the chance
of them winning a gaming concession in overseas location is low and
therefore is more likely to be focusing on Macau in the future.
Steve Wynn, the designer
of one of the best casinos
in the world, opened its
first Asian casino in 2006
MGM, with the long
heritage in Las Vegas,
opened MGM Macau
in 2007
Caesars missed the boat
Macau subsidiary should
have very consistent
business operations
SJM and Galaxy are
unlikely to divest
out of Macau . . .



Figure 36
Asia/USA gaming: Business operations by location
Sands
China
Wynn
Macau
Galaxy SJM MGM
China
Melco
Crown
LVS Wynn
Resorts
MGM
Resorts
Macau
HK/China
Taiwan O O O O
Singapore
Philippines
Other Asia
United States
Americas (ex-USA)
Europe
Note: Tick mark represents markets which the company is already operating in or is highly likely to be operating in, circle mark represents market
which the company could potentially expand into, while cross mark represents markets which the company is highly unlikely to expand into;
Consistency is not true for some other gaming operators such as the Genting
Group in Malaysia. Genting received the first and only gaming license in
Malaysia in 1969 and opened the Genting highlands in 1971. The company
moved out of its core business in 1977 by entering the Plantations division. In
1990, management turned their focus back to the gaming business by
expanding the Genting Highlands. In 1993, Genting ventured into another
new business by launching the Star Cruises.
In the 1990s, Genting moved into the paper manufacturing and oil and gas
extraction business. The company also expanded into the power industry by
acquiring power plants in India. In 2005, Genting expanded into the UK by
acquiring the Maxim Casino Club. In 2010, Genting turned its focus back to
Asean by opening Resorts World Sentosa before opening Resorts World New
York in 2011.
Figure 37
Corporate history of Genting Bhd
1969 Begin construction of Genting Highland
1971 Genting Highland opens
1977 Company launches Plantation division
1990 Three new hotels and theme parks added to Genting Highland
1993 Company launches Star Cruise
1994 Company diversifies with purchase of Sanyen Paper Mill complex
1996 Purchased 45% stake in British Gas Muturi PSC in Irian Jaya, Indonesia
1998 Launch of corrugated packaging plant
2000 Stake in Muturi PSC sold to British Petroleum
2003 Acquired equity interest in power plant in India
2005 Expanded into UK by acquiring Maxims Casino Club
2010 Opened Resorts World Sentosa
2011 Opened Resorts World New York
Top scorers: Sands China, Wynn Macau and MGM China
. . . not really the case for
Genting Bhd
Gentings history



6. Generate high owner earnings and lack of need to renivest
All nine Macau gaming companies are cashflow positive and we expect them
to generate average free cashflow of US$330-1,716m per annum in 2012-13.
Las Vegas Sands is the strongest cashflow generator with expected free-
cashflow generation of US$1,716m pa in 2012-13. We expect SJM to come in
second and to generate an average free cashflow of US$1bn in 2012-13. SJM
generates the highest free-cashflow yield of 9% followed by 7% from MGM
China and MGM Resorts.
Figure 38 Figure 39
Free cashflow - 2012-13CL avg Free-cashflow yield - 2012-13CL avg

Top scorers: SJM, MGM China, MGM Resorts
Lack of need to actively reinvest
As mentioned above, the Macau government has implemented strict controls
on expansion so all six gaming companies only have one or two more casino
properties left to build in the enclave. Melco Crown is the only Macau
concession holder investing outside the market with one investment thus far
in the Philippines.
Gaming companies generally do not need to actively reinvest as the
maintenance capex required by a casino property is quite minimal, compared
to the huge operational in-cashflow. Maintenance capex should continue to be
relatively low, although may increase slightly as companies improve premium
mass gaming space.
US gaming operators continue to look for opportunities in other markets such
as Spain and Japan, but globally governments have been slow to issue casino
licenses, despite the potential need for increased tax revenues, job creation
and tourism following the global financial crisis.
Figure 40
List of potential Cotai projects
Company Potential Cotai expansion Estimated capex (US$bn)
Sands China Sands Site 3 3.0
Wynn Macau Wynn Cotai 3.5
Galaxy Galaxy Macau Phase II 2.0
Melco Crown Macau Studio City 1.9
SJM SJM Cotai 2.0
MGM China MGM Cotai 2.5
0 500 1,000 1,500 2,000
MGM Resorts
Melco Crown
MGM China
Wynn Macau
Wynn Resorts
Galaxy
Sands China
SJM
Las Vegas Sands
(US$m)
0 2 4 6 8 10
Sands China
Wynn Macau
Las Vegas Sands
Galaxy
Wynn Resorts
Melco Crown
MGM Resorts
MGM China
SJM
(%)
Strong free-cashflow
generation
Strong free cashflow
generation
The Macau gaming
companies only have one
more casino left to build



Las Vegas Sands and Sands China stood out as the companies with the
highest expected capex spend in 2012-13 as they are still constructing the
Sands Cotai Central. We estimate LVS and Sands China to incur an average of
US$1.3bn and US$1.1bn capex in 2012-13. SJM and MGM China will be the
companies with the lowest expected capex, as they have only recently
received the Cotai approval and are likely to be just spending mostly on
maintenance capex in 2012-13. On capex to OCF ratio, Melco Crown also
stands out as a big capex spender as we forecast the company to spend on
the construction of Belle Grande Manila and also Macau Studio City.
Figure 41 Figure 42
Capex, 2012-13 avg Capex as % of operating cashflow, 2012-13 avg

Top scorers: SJM, MGM China, MGM Resorts
7. Rational with managing capital
As detailed in our Still raining cash report, casino operators generate high
free cashflow, with reasonable revenue growth, limited cost pressure, low
working capital and capex requirements. From 2009, most casino operators
have turned FCF positive and in 2011, Las Vegas Sands, Wynn Resorts and
Wynn Macau generated FCF in excess of US$1bn.
Figure 43
Free cashflow
(US$m) 2006 2007 2008 2009 2010 2011 12CL 13CL
MGM Resorts (551) (1,923) (43) 465 297 212 340 (284)
Las Vegas Sands (2,122) (3,433) (3,664) (1,454) (154) 1,154 923 1,993
Wynn Resorts (403) (348) (810) 53 773 1,332 840 393
Sands China (679) (1,443) (1,717) 318 1,016 709 618 1,064
Wynn Macau (328) 19 204 283 756 1,095 755 466
Melco Crown na (517) (1,136) (1,070) 109 933 894 15
Galaxy na (57) (307) (99) (51) (147) 577 805
SJM na (413) (199) 347 957 976 1,031 995
MGM China na na (55) 99 400 667 580 386
0 500 1,000 1,500
MGM China
SJM
MGM Resorts
Wynn Macau
Melco Crown
Galaxy
Wynn Resorts
Sands China
Las Vegas Sands
(US$m)
0 10 20 30 40 50 60 70
SJM
MGM Resorts
MGM China
Las Vegas Sands
Wynn Resorts
Wynn Macau
Galaxy
Melco Crown
Sands China
(%)
Maintenance capex
requirement is minimal
In 2011, LVS, Wynn
Resorts and Wynn Macau
generated free cashflow
in excess of US$1bn . . .
Casino operators are very
strong in free-cashflow
generation



Figure 44
Free cashflow yield
(%) 2006 2007 2008 2009 2010 2011 12CL 13CL
MGM Resorts (11.2) (38.9) (0.9) 9.4 6.0 4.3 6.9 (5.8)
Las Vegas Sands (5.8) (9.4) (10.0) (4.0) (0.4) 3.2 2.5 5.6
Wynn Resorts (3.6) (3.1) (7.2) 0.5 6.9 11.9 7.5 3.6
Sands China (2.1) (4.5) (5.3) 1.0 3.1 2.2 1.9 3.4
Wynn Macau (2.1) 0.1 1.3 1.8 4.9 7.1 4.9 3.1
Melco Crown na (6.3) (13.9) (13.1) 1.3 11.4 10.9 0.2
Galaxy na (0.4) (2.0) (0.6) (0.3) (0.9) 3.7 5.4
SJM na (3.3) (1.6) 2.7 7.6 7.7 8.1 7.7
MGM China na na (0.8) 1.5 5.9 9.8 8.5 5.8
With the strong free-cashflow generation and rising cash balance, we praise
companies that actively return excess cash to shareholders in the form of
dividends. SJM, Wynn Resorts and MGM China have been most generous in
returning cash to investors, and we expect them to deliver 6-7% average
dividend yield in 2012-13. Galaxy and Melco Crown do not pay dividends, but
that is a result of them having a better growth prospects, and we are not
disappointed by the lack of dividend in the next 12 months.
Figure 45
Dividend
(US$m) 2006 2007 2008 2009 2010 2011 12CL 13CL
MGM Resorts 0 0 0 0 0 0 0 0
Las Vegas Sands 0 0 0 0 0 0 823 1,154
Wynn Resorts 593 0 0 395 840 642 939 810
Sands China 0 0 0 0 0 1,207 1,188 1,512
Wynn Macau 0 0 0 0 509 803 663 690
Melco Crown na 0 0 0 0 0 0 0
Galaxy na 0 0 0 0 0 0 0
SJM na 0 5 65 250 520 671 737
MGM China na na 0 0 0 400 361 406

Figure 46
Dividend yield
(%) 2006 2007 2008 2009 2010 2011 12CL 13CL
MGM Resorts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Las Vegas Sands 0.0 0.0 0.0 0.0 0.0 0.0 2.3 3.2
Wynn Resorts 5.3 0.0 0.0 3.5 7.5 5.7 8.4 7.4
Sands China 0.0 0.0 0.0 0.0 0.0 3.7 3.7 4.9
Wynn Macau 0.0 0.0 0.0 0.0 3.3 5.2 4.3 4.6
Melco Crown na 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Galaxy na 0.0 0.0 0.0 0.0 0.0 0.0 0.0
SJM na 0.0 0.0 0.5 2.0 4.1 5.3 5.7
MGM China na na 0.0 0.0 0.0 5.9 5.3 6.1
Top scorers: Wynn Resorts, SJM and MGM China
8. Generates high return on equity
Return on equity (ROE) is one of the better financial metrics to assess a
companys ability to create value for shareholders. The key differentiator is
whether the company was a buyer or seller of the gaming concessions. While
this occurred back in 2002, we still find the situation unusual. The brief
. . . representing FCF
yield of 3-11%
Expect Sands China to
distribute US$1.2bn of
dividend in 2012
In 2012, we expect Macau
to generate 33% ROE -
the highest among all
Asian sectors




background is that the government issued three gaming concessions at zero
cost to SJM, Wynn and a joint venture between Las Vegas Sands and Galaxy.
Soon after, there was some disagreement between Las Vegas Sands and
Galaxy so the government allowed this concession to be effectively split into
two. The government then allowed SJM and Wynn to sell a subconcession to
another party - SJM selling to MGM for US$200m and Wynn selling to Melco
Crown for US$900m.
As a result, Wynn Macau stands out as the company with the highest ROE of
137% in 2012. Wynn Macaus high ROE is in also due to the highly successful
Wynn Macau casino, which we estimate to generate an ROIC of 65% in
2012. Melco Crown generates the lowest ROE. That is also partly due to the
high capex for City of Dreams of US$2.7bn (vs. Venetian Macao of US$2.4bn,
Galaxy Macau of US$2.0bn and Wynn Macau of US$1.8bn).
Return on equity of Sands China is relatively low among the peer group as
the company asset base is largely composed of Cotai projects, which contains
more non-gaming elements that yield low invest return. Another key reason
to the low ROE is because the assets of Sands Cotai Central has already been
recorded in the companys balance sheet, while the earnings from the casino
is not reflected in the companys 2012 net profit as the property is still yet to
ramp up.
Figure 47
Return on equity, 2012

Macau subsidiaries also tend to generate higher return on equity (versus the
US parentco) as the investment return generated by a Macau casino is much
higher than those in Las Vegas and in Singapore. Construction cost of an
integrated resort in Las Vegas and Macau are quite similar, but property
Ebitda is much higher in Macau due to a bigger gaming market size. Property
Ebitda in Singapore are high, helped by the low gaming tax, but construction
cost is also much higher with the two Singapore IRs costing US$5.5-6.5bn
each, while Macau casinos generally only cost US$2-3bn. The lower
investment return from the Singapore and Las Vegas Sands is the key reason
why the ROE of the Macau subsidiary is significantly higher than that of the
parent company.
(20) 0 20 40 60 80 100 120 140
MGM Resorts
Melco Crown
Las Vegas Sands
Sands China
SJM
Galaxy
Wynn Resorts
MGM China
Wynn Macau
(%)
Wynn Macau generate
the highest ROE
Investment return
generated by a Macau
casino is much higher
Wynn Macau stands out
as the company with the
highest ROE of 137%



Figure 48
Casinos: ROIC, 2012

Note: Casinos in Macau are highlighted in yellow, while casinos in Singapore and Las Vegas are
highlighted in Blue; Source: CLSA Asia-Pacific Markets
Figure 49
Casinos: Property cost and Ebitda, 2012
Cost (US$m) Ebitda (US$m) ROIC (%)
Wynn Las Vegas 2,700 365 14
Resorts World Sentosa 5,500 1,183 22
Venetian Las Vegas 1,530 355 23
Mariana Bay Sands 6,500 1,645 25
Altira 580 150 26
Four Seasons 974 266 27
City of Dreams 2,700 769 28
Galaxy Macau 1,987 716 36
Venetian Macau 2,400 1,099 46
MGM Macau 1,200 723 60
Wynn Macau 1,800 1,178 65
Grand Lisboa 625 604 97
Starworld 411 436 106
Sands Macao 265 357 135
Top scorers: Wynn Macau, MGM China, Wynn Resorts
9. Avoids excess debt
Generally, gearing at the parent level is higher, with MGM Resorts and Las
Vegas Sands being more highly levered than their Macau subsidiaries. Wynn
Resorts net gearing is less comparable to that of other gaming companies as
Wynn has issued a 10-year bond to redeem the 20% stakes owned by Kazuo
Okada, which moved the companys net asset balance to negative territory.
SJM and MGM China are the companies with the lowest gearing, with net cash
accounting for 25-52% of shareholder equity.
0 20 40 60 80 100 120 140 160
Wynn Las Vegas
Resorts World Sentosa
Venetian Las Vegas (including Palazzo)
Mariana Bay Sands
Altira
Four Seasons
City of Dreams
Galaxy Macau
Venetian Macau
MGM Macau
Wynn Macau
Grand Lisboa
Starworld
Sands Macao
(%)
The Macau gaming sector
is highly rich in cash
Sands Macao and
Starworld generates
over 100% ROIC



Figure 50
Net debt to equity (2012)

Top scorers: SJM, MGM China, Wynn Macau
10. Current valuation offers margin of safety
Buffett also stresses the importance of a margin of safety, which is the
discount to fair value that the stock is currently offering. We derive the fair
value of the Macau operators by using 10-15x 2013 EV/Ebitda to our earnings
estimate. Based on our fair-value estimates, the sector is now trading at 73-
88% of its fair value, offering 12-27% margin of safety, which should be wide
enough for investors to maintain positive on the sector. Among the nine
gaming companies, MGM China, MGM Resorts and SJM are the companies
offering the widest margin of safety of 26-27%.
Figure 51
Margin of safety

Top scorers: MGM China, MGM Resorts, SJM and Melco Crown

(100) (50) 0 50 100 150
SJM
MGM China
Wynn Macau
Galaxy
Melco Crown
Sands China
Las Vegas Sands
MGM Resorts
Wynn Resorts
(%)
na
0 5 10 15 20 25 30
Wynn Resorts
Sands China
Wynn Macau
Galaxy
Las Vegas Sands
Melco Crown
SJM
MGM Resorts
MGM China
(%)
Macau offers a wide
margin of safety
SJM, MGM China and
Wynn Macau are expected
to be net cash in 2012

Section 3: Annualised average return of 20% to 2016 Macau gaming


Annualised average return of 20% to 2016
We value Macau stocks on sum of the parts - like the street - applying an
EV/Ebitda multiple to earnings from existing operations and adding a DCF-
derived fair value for future projects. However, we believe the industry
should now be valued based on dividend yields and we are slowly seeing
some growth investors leaving the sector, with yield seekers taking their
place. It takes time for the market to view the sector in a different light
but it will occur once investors fully believe in the sustainability of the
dividends - we are not there yet. Using this alternative methodology, we
value the stocks on yield which results in an average four-year annualised
return of 12-23% from now until 2016.
Highest yield in Asia
We believe the sector is currently undervalued, offering free-cashflow yields
of 4-5% (versus Asia consumers 2-3%) and dividend yields of 4-5% (versus
Asia consumers 3%).
Figure 52
Valuation comparison
PE (x) FCF yield (%) Dividend yield (%)
2012 2013 2012 2013 2012 2013
Macau gaming 19.4 16.3 4.8 4.1 4.3 4.9
China consumer 25.7 19.9 0.7 3.0 1.8 2.1
Asia consumer 19.2 16.9 1.8 3.3 2.9 3.3
Supported by strong free-cashflow generation, we expect the Macau gaming
companies to deliver a 2013 dividend yield of 5%, the highest among all
sectors in Asia and significantly better than the market average of 3%.
Figure 53
Asia: Dividend yield by sector (13CL)

0 1 2 3 4 5 6
Internet
Healthcare
Autos
Technology
Insurance
Conglomerates
Capital goods
Petro/Chems
Consumer
Power
Materials
Hotels & Leisure
Property
Infrastructure
Transport
Media
Financial services
Telecoms
Macau gaming
(%)
Macau gaming offers best
dividend yields
Trading at discount to the
consumer sector
Macau: Increasingly
a yield sector



Gradual pricing in of Cotai
In addition to the attractive dividend yield, the Macau gaming operators also
benefit from the gradual pricing in of the Cotai projects. Wynn Cotai, Galaxy
Macau Phase 2, and Macau Studio City have already commenced
construction, while the others are still pending the construction permit to
start. With most of the casino properties running at high capacity utilisation,
we expect the upcoming Cotai projects to drive substantial earnings growth.
We estimate the Cotai projects account for 6-24% of the fair value, despite
assuming low return on investment (ROIC) of 14-19% (compared to 27-46%
ROIC for existing Cotai properties) to factor in potential risk of delay.
Figure 54
Cotai: Value computation assumptions
Wynn SJM MGM Melco Galaxy Sands
Project capex (US$m) 3,500 2,000 2,500 2,000 2,000 3,000
WACC (%) 12.0 12.0 12.0 12.0 12.0 12.0
Terminal growth rate (%) 2.0 2.0 2.0 2.0 2.0 2.0
Project ROIC (%) 19.0 17.0 14.0 17.0 17.0 15.0
Maintenance capex as % of project capex 6.0 5.0 5.0 5.0 5.0 5.0
Project stakes owned (%) 100 100 100 60 100 100
Cotai value as % of target price 24.0 12.9 17.0 12.4 12.1 6.5

Figure 55
Cotai casinos ROIC (12CL)

Alternative valuation: Yield to completion
With macro uncertainty, we expect investors to increasingly appreciate the
dividend-generation capability of the Macau gaming operators. Our
microstrategy team highlights in its recent Dividend wave 2012 report that
there has been consistent weekly inflow into dividend-focused equity fund
since 2011, adding up to an impressive US$70bn inflow from 2011 to 2012
YTD. The strong inflow into dividend funds could also mean that investors are
starting to value the sector based on dividend yields instead of growth.
27
28
36
46
0 10 20 30 40 50
Four Seasons
City of Dreams
Galaxy Macau
Venetian Macao
(%)
DCF model
Dividends and also
gradual pricing in of Cotai
Existing Cotai properties
generate 27-46% ROIC



Figure 56
Global dividend equity funds - Monthly flows, 2011-YTD12

Source: EPFR global, CLSA Asia-Pacific Markets
To combine the strong dividends yields and the potential capital gain from the
upcoming Cotai projects, we look at yield to completion, which shows the
average total return (dividends + capital return) that the Macau gaming
companies can offer between 2013 and 2016, before the opening of the next
Cotai property.
We calculate our 2016 target price by applying 10-15x EV/Ebitda to our 2016
Ebitda estimate. The 2016 Ebitda is composed of two components, Ebitda
from existing operations and Ebitda from the new Cotai projects. We calculate
the 2016 Ebitda on existing operations by applying 5% p.a. growth to our
2014 estimate. While for the Cotai projects, to simplify, we assume all of the
six companies to open in 2016 and to generate US$340-665m Ebitda
(calculated based on US$2.0-3.5bn construction capex and return on
investment of 14-19%).
Figure 57
Macau gaming: 2016 target price
Sands
China
Wynn
Macau
MGM
China
Melco
Crown
SJM Galaxy
2014 adj. Ebitda (US$m) - Existing operations 2,833 1,178 726 1,016 1,174 1,485
2016 adj. Ebitda (US$m) - Existing operations 3,123 1,299 800 1,120 1,295 1,637
Cotai capex (US$m) 3,000 3,500 2,500 2,000 2,000 2,000
Cotai ROIC (%) 15 19 14 17 17 17
2016 Cotai Ebitda (US$m) 450 665 350 340 340 340
2016 Total Ebitda (US$m) 3,573 1,964 1,150 1,460 1,635 1,977
EV/Ebitda multiple 15 13 11 10 11 11
Enteprise value (US$m) 53,592 25,528 12,652 14,604 17,982 21,747
Net debt (US$m) 2,328 813 5 15 (2,695) (1,577)
Equity value (US$m) 51,265 24,715 12,646 14,589 20,677 23,325
No. of shares 8,050 5,188 3,800 552 5,523 4,180
Target price (LC$) 49.4 36.9 25.8 26.4 29.0 43.2
Note: Assume 5% Ebitda growth on existing operations in 2015-16 for the six gaming companies; Source: CLSA Asia-Pacific Markets
Our 2016 target price implies an annualised capital return of 12-17% over
the next four years. The 12-17% capital return, combined with the
forecasted 5-6% dividend yield implies that the Macau gaming firms are set
to offer investors an average four-year annualised return of 12-23% from
now until 2016.
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(US$m)
Global dividend funds witnessed inflows in
91 weeks out of 96 since 2011
US$70bn inflow from
2011 to 2012YTD
Use yield to completion
as an alternative
valuation method
Apply 10-15x multiple to
2016 Ebitda to derive our
2016 price target



Figure 58
Macau gaming: Yield to completion
Company Price
(lcy)
Target
(lcy)
Dividend yield
(%)
Annualised
capital return (%)
Annualised
dividend return (%)
Annualised
total return (%)
2016 13CL 14CL 15CL 16CL 13-16CL 13-16CL 13-16CL
Galaxy 27.4 43.2 0.0 0.0 0.0 0.0 12.1 0.0 12.1
Melco Crown 15.0 26.4 0.0 0.0 0.0 0.0 15.2 0.0 15.2
MGM China 13.7 25.8 5.8 6.3 6.3 6.3 17.1 6.2 23.3
Sands China 30.5 49.4 4.7 5.7 5.7 5.7 12.8 5.4 18.2
SJM 17.2 29.0 5.9 6.6 6.6 6.6 14.0 6.4 20.4
Wynn Macau 22.7 36.9 4.6 5.0 5.0 5.0 13.0 4.9 17.9
Still raining cash; Maintain BUY
As detailed in our Still raining cash report, we favour the sector for its strong
free cashflow generation, high dividend yield and gradual pricing in of Cotai.
We believe the Macau gaming sector is the best way to gain exposure to the
rising Chinese middle class. Despite the strong share-price performance in
the past few months, we still like the sector and have nine BUYs in our global
gaming coverage.
Figure 59
Global gaming: Three-month share-price performance

We recently lifted Galaxys target EV/Ebitda multiple from 10x to 11x and
upgraded the stock from Outperform to BUY on the companys strong
performance in further improving Galaxy Macau. We highlight Melco Crown,
SJM, Wynn Macau and Las Vegas Sands as our top sector picks.
Figure 60
Valuations
Company Code Ctry Price
(lcy)
Target
(lcy)
Upside
(%)
Rec Mkt cap
(US$m)
PE
(x)
EV/Ebitda
(x)
Cashflow
yield (%)
Div yield
(%)
2012 2013 2012 2013 2012 2013 2012 2013
Galaxy 27 HK HK 27.4 33.0 20.7 BUY 14,812 15.7 14.6 11.9 10.6 3.9 5.4 - -
Las Vegas Sands LVS US USA 42.8 58.0 35.5 BUY 36,571 22.2 14.4 11.1 9.3 0.3 0.7 3.3 4.2
Melco Crown MPEL US US 14.2 19.4 36.7 BUY 8,080 18.9 15.8 9.5 8.7 10.8 0.2 - -
MGM China 2282 HK HK 13.7 18.8 37.2 BUY 6,716 12.3 13.7 9.8 9.6 8.4 5.6 5.4 5.8
MGM Resorts MGM US USA 9.8 14.0 42.9 BUY 4,782 nm nm 11.1 10.3 0.4 (0.7) - -
Sands China 1928 HK HK 30.5 35.3 15.7 BUY 31,686 26.6 16.8 18.0 13.8 1.8 3.3 3.7 4.7
SJM 880 HK HK 17.2 23.2 34.9 BUY 12,309 14.8 13.5 11.5 10.2 8.1 7.8 5.4 5.9
Wynn Macau 1128 HK HK 22.7 27.1 19.6 BUY 15,159 18.3 17.6 15.1 12.5 4.9 3.0 4.4 4.6
Wynn Resorts WYNN US USA 109.3 127.0 16.2 BUY 10,982 22.1 18.2 10.7 10.2 1.0 0.5 8.7 7.3
(5) 0 5 10 15 20 25 30 35 40
MGM Resorts
Wynn Resorts
Las Vegas Sands
MGM China
SJM
Sands China
Wynn Macau
Melco Crown
Galaxy
(%)
We recently upgraded
Galaxy from Outperform
to BUY

Section 4: Best way to play Chinese consumption Macau gaming


Best way to play Chinese consumption
Our recent Still raining cash report highlighted the Macau gaming sector as
the best way to gain exposure to the rising Chinese middle class due to the
industrys ability to convert consumer spending into a companys free
cashflow and dividends. In 2011, Macau gaming companies converted
US$35bn of casino revenue into US$4.2bn of free cashflow (11.9% of
revenue) and US$3.0bn of dividends (8.4%). The conversion ratio of Macau
gaming firms has been significantly higher than that of other consumer
companies, which were able to convert less than 1% of industry revenue.
We carried out our analysis by collating industry revenue from
Euromonitor estimates and various industry sources. Next, we aggregate
the revenue, net profit, free cashflow and dividend of the various listed
consumer companies to calculate their key financial metrics. By comparing
the listed-company financials with industry revenue, we can determine
how much of mainland Chinese consumer spending has been converted
into free cashflow and dividends.
Figure 61
China consumer/gaming: Listco revenue and dividend (2011)

Figure 62
China consumer/gaming: Key financials, 2011
Sector Industry
revenue
(US$bn)
Listco
revenue
(US$bn)
Listco
net profit
(US$bn)
Listco
FCF
(US$bn)
Listco
dividend
(US$bn)
As % of industry revenue
Listco
revenue
Listco
net profit
Listco
FCF
Listco
dividend
Macau gaming 35.0 35.0 3.7 4.2 3.0 100.0 10.5 11.9 8.4
Department stores 35.1 2.1 0.6 0.3 0.2 5.9 1.7 0.8 0.6
Jewellery 39.9 13.2 1.3 (1.0) 0.2 33.1 3.3 (2.5) 0.5
Daily use goods 42.7 3.5 0.5 0.1 0.3 8.2 1.1 0.3 0.6
Apparel (incl sportswear) 128.4 6.5 1.0 0.3 0.4 8.7 1.2 0.4 0.5
Food, beverage and tobacco 159.5 27.7 1.8 (0.8) 0.7 17.4 1.1 (0.5) 0.5
Autos 321.3 96.3 6.5 2.4 1.1 30.0 2.0 0.8 0.3
Supermarket 543.9 14.8 0.3 0.1 0.2 2.7 0.1 - -
Note: Industry revenue of department stores is based on gross department store sales from Euromonitor multiplied by average concession rate of
listed department store operators (26.4%); industry supermarket revenue is based on Euromonitor estimates; while industry revenue of daily use
goods, apparel, food, beverages and tobacco and autos are based on China retail sales figure prepared by the National Bureau of Statistics of
China; Industry revenue of jewellery is an aggregate of jewellery retail sales in Hong Kong and Mainland China; Source: CLSA Asia-Pacific Markets,
CEIC, Euromonitor, company data
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Revenue Dividend (RHS) (US$bn) (US$bn)
The research thesis
Macau casinos distributed
US$3bn in dividends
in 2011



Key drivers of better dividends for Macau versus peers include:
Shifting budgets in favour of discretionary spending
Less-competitive industry landscape - externally (very few jurisdictions
have legalised gaming) and internally (only six licensed operators)
High earnings visibility
Strong cashflow conversion due to lower capex requirement
Appetite to pay dividends (especially US companies)
Macau gaming. The Macau gaming companies offer good exposure to
mainland Chinese spending as the six licensed casino operators account for
100% of the market. The low capex requirement enables them to generate
strong free cashflow. The companies also have a strong appetite to pay
dividends, with Sands China, Wynn Macau, SJM and MGM China estimated to
deliver 80% dividend payouts.
Jewellery. Investors enjoys good exposure to the jewellery sector from the
listed watch and jewellery retailers (including Chow Tai Fook, Luk Fook,
Emperor Watch & Jewellery, Oriental Watch, Hengdeli and Chow Sang Sang),
as they in aggregate account for 33% of total industry retail sales. However,
they have failed to generate positive free cashflow, as the companies have
been aggressively expanding store network with most of the operating profits
reinvested back into the business for inventory purchases and new store
openings. The weak free-cashflow generation has therefore limited their
capacity to distribute dividends, with 2011 payouts at 30-40%.
Daily use goods. Listed daily use goods manufacturers (like Hengan, Vinda,
Shanghai Jahwa and Magic) tend to enjoy high market share in their
respective product segments. But there are various daily use goods
manufacturers like Guangzhou Liby (largest player in dishwashing products,
laundry care and home care in China according to Euromonitor) which are not
listed. Free cashflow generation of daily use goods companies is not very high
as most are spending sizeable capex to expand their production capacity. This
resulted in a lower dividend payout of 30-60% in 2011.
Apparel. Listed apparel companies (including Belle Intl, Trinity, Li Lang,
Daphne, Evergreen Intl and the various sportswear manufacturers) are
aggressively pursuing growth by expanding their store networks. Capex
requirements are not as high as the daily use goods or food and beverages
companies as a large portion of the point-of-sales are third-party operated.
Free cashflow generation of the apparel companies are generally strong
(except sportswear manufacturers which have been building up inventory and
accounts receivables as a result of wholesale channel stuffing). In 2011, the
limited capex requirement enabled the apparel firms to maintain high
dividend payouts of 30-80%.
Food, beverages and tobacco (FBT). Listed food and beverages
manufacturers (including Tingyi, Want Want, Tsingtao, Uni-President, Mengniu
Dairy, China Foods, Dynasty Wine, Changyu Wine and China Huiyuan Juice)
offer strong exposure to mainland Chineses FBT spending with their dominant
industry position. They are still trying to pursue growth by taking over small
players or construct new production facilities, which imply higher capex
investment and lower free cashflow generation. The sizeable expansionary
capex resulted in a lower dividend payout of 20-60% in 2011.
Most operating profits
reinvested into the
business for inventory
and store openings
Capex spent on expanding
production capacity
Apparel (ex-sportswear)
are strong in cashflow
generation
Acquisitions and
production capacity
expansion led to high
capex spending
Macau can convert rising
revenue into free
cashflow and dividends
Minimal capex
requirement allows high
dividend payout



Autos. Investors can gain high exposure to mainland Chinese automobiles
spending from listed manufacturers (including Shanghai Auto, Dongfeng,
Great Wall Motor, Brilliance Auto, GAC and Geely), with these companies
accounting for 30% of total industry retail sales. Profit margin of auto
manufacturers is much lower than consumables companies due to the high
overhead, raw materials and distribution cost. Capex intensity of the
automakers is also high to maintain the production facility and expand
capacity to drive earnings growth. The weak free-cashflow generation has
limited capacity to distribute dividend, with the companies maintaining a
dividend payout of 10-30% in 2011.
Department stores. The listed department stores (like Golden Eagle,
Parkson Retail Group, Intime and New World Department Store) do not offer
strong exposure to the Chinese department-store industry, as their aggregate
market share is rather low. Department-store operators generate wide profit
margins but companies are also aggressively expanding their store network
to tap onto the consumption growth in inland China. In 2011, the
department-store operators maintained a dividend payout of 30-50%.
Supermarkets. Listed supermarket operators, like Sun Art and Lianhua
Supermarket, offer investors minimal exposure to mainland Chineses
supermarket spending, as there are still a large number of non-modern
grocery retailers in the country. Supermarket operations carry thin margins.
Capex requirement is also high as expanding store network is the key to
future earnings growth. With sizeable expansionary capex, the supermarket
operators maintained a dividend payout of 30-50% in 2011.
Varying returns despite structural tailwind
Most investors are well aware of the rising consumer spending in China
underpinned by disposable income growth and low penetration in many
consumer-product categories. The growing consumer spending is a structural
tailwind for most of the consumer sub-segments, but over the past years, it
has not benefitted all of them equally in terms of share-price return. Out of
them all, Macau gaming companies were the biggest beneficiaries in terms of
share-price performance as the market rewards the high cashflow generation.
Figure 63
China consumer companies: Share-price performance by subsegments

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Dept store Supermarket
FBT Daily use goods
Apparel Sportswear
Jewellery Autos
Macau gaming
(Rebased to 100)
Low dividend payouts due
to thin margin and high
capex requirement
Aggressive store
expansion plan results in
high capex spending
Sourcing growth by
rolling out new
supermarkets
Macau casinos are the
biggest beneficiaries
(in terms of share-price
performance)
Macau delivered +620%
share-price return
since 2009




Overlaying share-price performance with net-profit growth highlights that the
laggards have underperformed due to their weak capability in converting the
robust spending by Chinese into earnings growth. From 2009 to 2012 YTD,
Macau gaming companies grew their earnings by 1,148%, underpinning
strong share-price growth of 620%.
Figure 64
China consumer: Share-price changes, 2009-12 to date

Source: Bloomberg, CLSA Asia-Pacific Markets
Please refer to our Still raining cash report for more details

(100) 0 100 200 300 400 500 600 700
Sportswear
Department store
Food, beverages & tobacco
Supermarket
Daily use goods
Apparel
Jewellery
Autos
Macau gaming
Net profit growth (2009-12)
Share-price performance
(%)
1,148
Strong profit growth
underpins share-price
performance

Macau gaming


Notes

Macau gaming


Company profiles
Galaxy .............................................................................................. 43
Las Vegas Sands ............................................................................. 47
Melco Crown ..................................................................................... 51
MGM China ....................................................................................... 55
MGM Resorts ................................................................................... 59
Sands China ..................................................................................... 63
SJM .................................................................................................. 67
Wynn Macau ..................................................................................... 71
Wynn Resorts ................................................................................. 75
Covered by Credit Agricole Securities (USA) Inc.
All prices quoted herein are as at close of business 8 November 2012, unless otherwise stated


Macau gaming


Notes


Galaxy
HK$27.35 - BUY

Financials
Year to 31 December 10A 11A 12CL 13CL 14CL
Revenue (HK$m) 19,262 41,186 56,137 58,434 62,409
Net profit (HK$m) 1,806 3,004 7,286 7,806 8,797
EPS (HK) 45.3 71.9 174.3 186.8 210.5
CL/consensus (23) (EPS%) - - 101 96 93
EPS growth (% YoY) 237.1 58.5 142.5 7.1 12.7
PE (x) 60.3 38.1 15.7 14.6 13.0
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
FCF yield (%) (0.4) (1.0) 3.9 5.5 6.0
PB (x) 11.8 8.0 5.3 3.9 3.0
ROE (%) 20.2 25.0 40.3 30.7 26.1
Net debt/equity (%) 52.8 38.7 5.6 (14.3) (26.9)
Find CLSA research on Bloomberg, Thomson Reuters, CapIQ and themarkets.com - and profit from our evalu@tor proprietary database at clsa.com
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
Hong Kong
Hotels & Leisure

Reuters 0027.HK
Bloomberg 27 HK
Priced on 8 November 2012
HK HSI @ 21,566.9

12M hi/lo HK$29.45/13.20

12M price target HK$33.00
% potential +21%

Shares in issue 4,179.7m
Free float (est.) 31.3%

Market cap US$14,812m

3M average daily volume
HK$554.0m (US$71.5m)

Major shareholders
City Lion 31.8%

Stock performance (%)
1M 3M 12M
Absolute 8.7 36.9 65.4
Relative 5.0 27.4 50.9

Source: Bloomberg
www.clsa.com
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Nov 10 Jul 11 Mar 12 Nov 12
Galaxy (LHS)
Rel to HSI
(HK$) (%)

Awaiting next phase
The addition of Galaxy Macau in May 2011 drove a strong 117% Ebitda
gain in 2011 and will help it to another 102% hike in 2012. The property
should continue to boost earnings, but given the high 2012 base we see
less scope for further improvement: we expect Ebitda growth to slow to
7% in 2013 pending the opening of Galaxy Macau Phase 2. We recently
lifted our target EV/Ebitda multiple to 11x and upgraded the stock from
Outperform to BUY. Our new HK$33.0 target implies 21% upside.
Investment thesis
The strong market-share expansion after the addition of Galaxy Macau was
the key driver of Galaxys 117% Ebitda jump in 2011 and will help it to a
102% Ebitda increase in 2012. This is likely to slow in 2013, as there is less
scope for further improvement in performance at the property. In the longer
term, the company is likely to resume rapid earnings growth with the opening
of Galaxy Macau Phase 2 in mid-2015.
Catalysts
The companys continued efforts to ramp up Galaxy Macau and to improve
operational efficiencies should be the key earnings drivers. In the longer
term, the markets gradual pricing in of Galaxy Macau Phase 2 will be an
additional share-price catalyst.
Growth estimate
We expect Galaxys revenue to increase 36% in 2012 (to HK$56bn) and 4%
in 2013 (to HK$58bn). The strong topline gains should translate into a
significant 102% jump in Ebitda in 2012 (to HK$9.8bn) and a further 7% rise
(to HK$10.5bn) in 2013. In 3Q12, the property Ebitda of Galaxy Macau came
in at US$227m, which is largely in line with City of Dreams US$204m, Wynn
Macaus US$292m and Venetian Macaos US$299m. This suggests less room
for the property to ramp up further.
Valuation
We recently raised our target multiple from 10x to 11x to reflect Galaxys
growing mass-market exposure and improved visibility on its Cotai
development. We value the stock using an 11x 13CL EV/Ebitda for existing
operations and HK$4.00 per share for Galaxy Macau Phase 2. Our HK$33.0
target (previously HK$30.5) implies an 18x 13CL PE, which we believe is fair
given that it is still at a discount to our 20-25x target PEs for other Chinese
consumer-discretionary names.

Galaxy - BUY Macau gaming


Dividend yield Return on equity

Free cashflow Capex as % of operating cashflow

Net debt/(cash) as a % of equity

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2010 2011 12CL 13CL 14CL
Galaxy Industry average (%)
na na na na na
(20)
(10)
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2008 2009 2010 2011 12CL 13CL 14CL
(88)
(3)
(2)
(1)
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(200)
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400
600
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2008 2009 2010 2011 12CL 13CL 14CL
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FCF yield (RHS)
(US$m) (%)
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30
60
90
120
150
2009 2010 2011 12CL 13CL 14CL
(40)
(20)
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40
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2008 2009 2010 2011 12CL 13CL 14CL
We expect Galaxy to turn
net cash in 2013



Summary financials
Summary P&L forecast (HK$m)
Revenue 19,262 41,186 56,137 58,434 62,409
Op Ebitda 2,231 4,848 9,794 10,498 11,507
Op Ebit 1,720 3,600 7,983 8,686 9,696
Interest income 25 62 108 108 108
Interest expense (59) (400) (616) (780) (760)
Other items 180 (201) (19) 101 101
Profit before tax 1,866 3,061 7,456 8,115 9,145
Taxation (45) (32) (51) (81) (91)
Minorities/Pref divs (16) (26) (119) (228) (256)
Net profit 1,806 3,004 7,286 7,806 8,797
Summary cashflow forecast (HK$m)
Operating profit 1,720 3,600 7,983 8,686 9,696
Operating adjustments - - - - -
Depreciation/amortisation 511 1,248 1,811 1,811 1,811
Working capital changes - - - - -
Net interest/taxes/other (125) (984) (2,069) (9) 351
Net operating cashflow 2,106 3,864 7,725 10,488 11,859
Capital expenditure (2,500) (5,000) (3,250) (4,250) (5,000)
Free cashflow (394) (1,136) 4,475 6,238 6,859
Acq/inv/disposals - - - - -
Int, invt & associate div (2,247) (1,503) 108 108 108
Net investing cashflow (4,747) (6,503) (3,142) (4,142) (4,892)
Increase in loans 7,004 2,246 3,929 (3,162) 4,374
Dividends (9) 0 0 0 0
Net equity raised/other (3,503) 2,032 (164) (780) (760)
Net financing cashflow 3,492 4,278 3,764 (3,942) 3,614
Incr/(decr) in net cash 851 1,639 8,348 2,404 10,581
Exch rate movements 2 4 0 0 0
Opening cash 3,516 4,369 6,013 14,361 16,765
Closing cash 4,370 6,013 14,361 16,765 27,346
Summary balance sheet forecast (HK$m)
Cash & equivalents 4,369 6,013 14,361 16,765 27,346
Debtors 363 595 686 737 787
Inventories 87 138 84 82 87
Other current assets 716 2,537 2,567 2,646 2,725
Fixed assets 12,471 17,469 18,631 21,070 24,259
Intangible assets - - - - -
Other term assets 7,179 9,012 8,935 8,935 8,935
Total assets 25,186 35,764 45,263 50,234 64,138
Short-term debt 2,283 1,142 2,036 1,126 -
Creditors 5,244 8,829 6,859 6,958 7,434
Other current liabs 481 22 38 38 38
Long-term debt/CBs 7,144 10,531 13,565 11,313 16,813
Provisions/other LT liabs 460 597 631 631 631
Minorities/other equity 378 421 557 784 1,041
Shareholder funds 9,197 14,222 21,578 29,384 38,181
Total liabs & equity 25,186 35,764 45,263 50,234 64,138
Ratio analysis
Revenue growth (% YoY) 57.5 113.8 36.3 4.1 6.8
Ebitda growth (% YoY) 92.2 117.3 102.0 7.2 9.6
Ebitda margin (%) 11.6 11.8 17.4 18.0 18.4
Net profit margin (%) 9.4 7.3 13.0 13.4 14.1
Dividend payout (%) 0.0 0.0 0.0 0.0 0.0
Effective tax rate (%) 2.4 1.0 0.7 1.0 1.0
Ebitda/net int exp (x) 66.2 14.4 19.3 15.6 17.7
Net debt/equity (%) 52.8 38.7 5.6 (14.3) (26.9)
ROE (%) 20.2 25.0 40.3 30.7 26.1
ROIC (%) 12.7 19.8 35.3 34.1 34.4
EVA
/IC (%) 5.5 12.5 28.0 26.8 27.1

We expect net margin to
expand from 13% in 2012
to 14% in 2014
We expect cash balance
to reach HK$27bn in 2014
We estimate HK$6-7bn
free-cashflow in 2013-14
Revenue growth of
4-7% in 2013-14



Recommendation history of Galaxy Entertainment Group Ltd (27 HK)

Date Rec Target Date Rec Target
14 November 2012 BUY 33.00 26 April 2012 BUY 30.80
25 October 2012 O-PF 30.50 16 April 2012 BUY 29.00
17 October 2012 O-PF 28.10 20 February 2012 BUY 25.00
10 September 2012 BUY 28.70 16 November 2011 BUY 23.30
27 August 2012 BUY 27.00 20 October 2011 BUY 26.40
15 August 2012 BUY 25.80 20 September 2011 BUY 25.40
11 June 2012 BUY 24.00 01 September 2011 O-PF 24.50
10 May 2012 BUY 31.30 23 June 2011 O-PF 17.70

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Jan 10 May 10 Sep 10 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12
Aaron Fischer, CFA
Other analysts
No coverage
BUY
U-PF
O-PF
SELL

Las Vegas Sands
US$42.73 - BUY

Financials
Revenue (US$m) 6,853 9,411 10,917 12,882 13,813
Net income (US$m) 407 1,270 1,587 2,449 2,731
EPS (US$) 0.51 1.56 1.93 2.97 3.31
CL/consensus (26) (EPS%) - - 82 110 109
EPS growth (% YoY) nm 203.9 23.2 54.0 11.5
PE (x) 83.0 27.3 22.2 14.4 12.9
Dividend yield (%) 0.0 0.0 2.3 3.3 4.2
FCF yield (%) (0.5) 3.3 2.6 5.6 6.1
PB (x) 4.4 4.0 3.9 3.6 3.4
ROE (%) 9.9 21.1 18.7 25.7 26.0
Net debt/equity (%) 84.2 64.9 55.0 45.7 40.4
Source: Credit Agricole Securities (USA); FactSet for consensus data. CL = estimate
Jon Oh
jon.oh@clsa.com
(1) 212 549 8818
Clifford Kurz, CFA
(1) 212 549 8819

15 November 2012
USA
Hotels & Leisure

Reuters LVS.N
Bloomberg LVS US
S&P 500 @ 1,377.5

12M hi/lo US$62.08/34.72

12M price target US$58.00
% potential +36%

Shares in issue 826.1m


US$321.7m (US$321.7m)

Major shareholders
Sheldon Adelson 52.4%

1M 3M 12M
Absolute (4.4) 6.8 (11.1)
Relative 1.0 8.7 (17.6)

Source: Bloomberg
www.clsa.com
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45
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55
60
65
Las Vegas Sands
Rel to 500 (RHS)
(US$) (%)

Boosting its cashflow
Despite Macau and Singapores slowing growth in gaming revenue, we
expect Las Vegas Sands to increase cashflow meaningfully as it continues
to optimise Sands Cotai Centrals (SCC) premium mass segment offering
and adds 200 tables to the property. Its 6% FCF 13CL yield and 9x
EV/Ebitda multiple should continue to attract a new investor base, from
growth to income and value. Las Vegas Sands remains the top pick in our
US gaming universe. We reiterate our BUY call and US$58 target.
Investment thesis
With SCC contributing to growth in Macau and capital spending falling next
year on the propertys completion, we expect FCF to increase from US$0.9bn
in 2012 to US$2bn in 2013. Its 6% FCF yield tells us there is more headroom
to the recently raised US$1.4/share dividend and 3% dividend yield.
Catalysts
There are several positives on the horizon, including market-share gains in
Macau as Sands China adds another 4,000 hotel rooms and 200 tables to the
property. In addition, The Macau property continues to improve its VIP
product, which grew rolling-chip volumes by 35% YoY in 1H12 versus 12% for
the market. In Singapore, adding junkets to Marina Bay Sands could help
stabilise and increase VIP rolling-chip volumes, a segment that has been
volatile and lacking in growth. Given its significant cashflow, the company
could also raise dividends or announce a share buyback.
Earnings growth
Sands China is the key growth driver for Las Vegas Sands, representing the
majority of the parentcos 22% consolidated Ebitda increase in 13CL
(US$4.66bn). We expect Ebitda in Singapore to fall 5% in 2012 (to
US$1.45bn) due to 3Q12s abnormally low hold rate, but despite this we
expect growth to remain in the low-single digits as the property operates at
near full capacity.
Valuation
Our SOTP-derived target price of US$58 ascribes an EV/Ebitda of 9-12x for
the US properties, a HK$35.30 fair value for Sands China (covered by CLSA's
Aaron Fischer) and an EV/Ebitda of 15x for the Singapore properties (implying
a net cap rate of 5%).

Las Vegas Sands - BUY Macau gaming

48 jon.oh@clsa.com 15 November 2012




Source: CLSA Asia-Pacific Markets, Credit Agricole Securities (USA)
0
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2
3
4
5
6
2010 2011 12CL 13CL 14CL
Las Vegas Sands Industry average (%)
na na
(10)
0
10
20
30
40
50
2008 2009 2010 2011 12CL 13CL 14CL
(12)
(10)
(8)
(6)
(4)
(2)
0
2
4
6
8
10
(4,000)
(3,000)
(2,000)
(1,000)
0
1,000
2,000
3,000
4,000
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
50
100
150
200
250
2008 2009 2010 2011 12CL 13CL 14CL
Las Vegas Sands Industry average
(%)
548
(40)
0
40
80
120
160
2008 2009 2010 2011 12CL 13CL 14CL
We expect net gearing to
decline from 84% in 2010
to 40% in 2014


15 November 2012 jon.oh@clsa.com 49

Summary financials
Summary P&L forecast (US$m)
Revenue 6,853 9,411 10,917 12,882 13,813
Op Ebitda 2,229 3,532 3,819 4,663 5,095
Op Ebit 1,534 2,738 2,955 3,767 4,150
Other items (380) (374) (650) (344) (297)
Profit before tax 856 2,095 2,073 3,230 3,641
Taxation (74) (212) (197) (323) (364)
Minorities/pref divs/affils (374) (614) (289) (458) (545)
Net income 407 1,270 1,587 2,449 2,731
Summary cashflow forecast (US$m)
Net income 407 1,270 1,587 2,449 2,731
Operating adjustments 192 291 0 0 0
Depreciation/amortisation 695 794 864 897 945
Working capital changes (326) (788) (184) (261) (126)
Non-operating adjustments 901 1,096 232 358 445
Capital expenditure (2,024) (1,508) (1,600) (1,450) (1,850)
Free cashflow (154) 1,154 899 1,993 2,146
Acq/inv/disposals (684) 810 - - -
Net investing cashflow (2,708) (698) (1,600) (1,450) (1,850)
Increase in loans (1,204) (99) (552) (124) (272)
Dividends 0 (899) (637) (1,601) (2,016)
Net equity raised/other 76 (95) - - -
Net financing cashflow (1,128) (1,093) (1,190) (1,725) (2,288)
Incr/(decr) in net cash (1,965) 871 (291) 268 (143)
Exch rate movements 47 (5) 0 0 0
Opening cash 4,955 3,037 3,903 3,612 3,880
Closing cash 3,037 3,903 3,612 3,880 3,737
Summary balance sheet forecast (US$m)
Debtors 717 1,337 1,551 1,830 1,962
Other current assets 108 118 118 118 118
Fixed assets 14,502 15,031 15,767 16,320 17,225
Intangible assets - - - - -
Other term assets 1,249 430 428 428 428
Total assets 21,044 22,244 22,912 24,017 24,915
Short-term debt 767 456 89 871 -
Creditors 630 464 445 369 279
Other current liabs 1,203 1,579 1,579 1,579 1,579
Minorities/other equity 1,979 1,588 1,878 2,336 2,881
Ratio analysis
Ebitda margin (%) 32.5 37.5 35.0 36.2 36.9
Net income margin (%) 5.9 13.5 14.5 19.0 19.8
Dividend payout (%) 0.0 0.0 51.9 47.2 54.4
Net debt/equity (%) 84.2 64.9 55.0 45.7 40.4
ROE (%) 9.9 21.1 18.7 25.7 26.0
ROIC (%) 10.2 16.6 17.4 20.7 21.5
EVA
/IC (%) (8.5) (2.1) (1.3) 2.0 2.8

Source: Credit Agricole Securities (USA)
We forecast net margin to
improve from 15% in
2012 to 20% in 2014
Cash balance of
US$3.6-3.9bn in 2012-14
We estimate
US$0.9-2.1bn of free
cashflow in 2012-14
Forecast 7-18% revenue
growth in 2013-14



Recommendation history of Las Vegas Sands Corp (LVS US)

26 July 2012 BUY 58.00 19 September 2011 BUY 73.00
12 June 2012 BUY 68.00 04 May 2011 BUY 67.00
17 April 2012 BUY 72.00 02 February 2011 BUY 70.00
16 November 2011 BUY 70.00 05 November 2010 BUY 62.50

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Jon Oh
Other analysts
No coverage
BUY
U-PF
O-PF
SELL

Melco Crown
US$14.19 - BUY

Financials
Revenue (US$m) 2,642 3,769 3,911 4,124 4,604
Net income (US$m) (11) 292 395 473 552
EPS (US) (2.0) 55.4 74.9 89.6 104.5
CL/consensus (19) (EPS%) - - 107 109 101
EPS growth (% YoY) nm nm 35.2 19.7 16.7
PE (x) nm 25.6 18.9 15.8 13.6
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
FCF yield (%) 1.5 12.5 11.9 0.2 1.8
PB (x) 3.0 2.3 2.1 1.8 1.6
ROE (%) (0.4) 10.2 11.6 12.2 12.6
Net debt/equity (%) 55.4 36.6 11.3 11.0 8.0
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
USA
Hotels & Leisure

Reuters MPEL.OQ
Bloomberg MPEL US
ADR MPEL.OQ
S&P 500 @ 1,377.5

12M hi/lo US$16.02/8.19

% potential +37%



US$57.6m (US$57.6m)

Major shareholders
Melco Joint Venture 33.4%
Capital Research Global Investor 3.3%

1M 3M 12M
Absolute 10.3 35.5 22.4
Relative 16.5 38.0 13.4

Source: Bloomberg
www.clsa.com
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260
4
6
8
10
12
14
16
18
Melco Crown
Rel to 500 (RHS)
(US$) (%)

Visible growth prospects
We expect Melco Crown to deliver an 8% Ebitda Cagr over the next two
years. In the near term, the opening of a new VIP area opening at City of
Dreams should underpin growth. In the longer term, the startup of Belle
Grande Manila and Macau Studio City will drive earnings increases. We
maintain our BUY recommendation, with our US$19.40 target implying
37% upside. Melco Crown is our top pick in the gaming space.
Investment thesis
Melco Crown is our top sector pick due to its high mass-market exposure and
strong growth pipeline. In the near term, we expect its continuous
optimisation of gaming tables (by moving lower-yielding tables at Altira to
City of Dreams) to drive its earnings expansion. In the longer run, its
collaboration with the Philippines SM Group and Belle Corp to develop Belle
Grande Manila will be another profit driver. Macau Studio City (which recently
received final government approval) and the development of City of Dreams
Phase 3 should also be key positives.
Catalysts
The further ramp up of the City of Dreams property after opening the new
VIP area, and ground-breaking in the Macau Studio City project, will boost
the stock. Belle Grande Manila, opening in 2014, is an additional share-price
catalyst.
Growth estimate
We expect Melco Crown to deliver US$3,911m net revenue in 2012 (up 4%)
and US$4,124m in 2013 (up 5%). The companys high operating leverage
should translate this into 6-10% YoY Ebitda increases in the next two years,
reaching US$861m in 2012 and US$943m in 2013.
Valuation
We value Melco Crown by applying a 10x 13CL EV/Ebitda to existing
operations, and adding HK$2.40 per share for Macau Studio City. Our US$19.40
target price implies a 22x 13CL PE, which we believe is fair given that this still
represents a discount to our 20-25x target PEs for other Chinese consumer-
discretionary names. Melco Crown is our top pick in the gaming space.


Melco Crown - BUY Macau gaming





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2
3
4
5
6
2010 2011 12CL 13CL 14CL
Melco Crown Industry average (%)
na na na na na
(30)
(20)
(10)
0
10
20
30
40
50
2008 2009 2010 2011 12CL 13CL 14CL
(20)
(15)
(10)
(5)
0
5
10
15
(1,500)
(1,000)
(500)
0
500
1,000
1,500
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2010 2011 12CL 13CL 14CL
(40)
(20)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
We expect gearing to
be 8-11% in 2012-14



Summary financials
Revenue 2,642 3,769 3,911 4,124 4,604
Op Ebitda 430 810 861 943 1,016
Op Ebit 93 448 464 563 636
Interest income (93) (122) (98) (90) (84)
Interest expense 0 0 - - 0
Other items (9) (36) 29 0 0
Profit before tax (10) 290 394 473 552
Taxation (1) 2 1 - -
Minorities/pref divs/affils - - - - -
Net income (11) 292 395 473 552
Net income (11) 292 395 473 552
Working capital changes - - - - -
Non-operating adjustments (105) 347 202 28 63
Net operating cashflow 223 1,001 995 881 995
Capital expenditure (113) (68) (100) (867) (863)
Free cashflow 109 933 895 15 132
Acq/inv/disposals 69 (186) (361) - -
Net investing cashflow (44) (253) (461) (867) (863)
Increase in loans 41 716 40 560 -
Dividends 0 0 0 0 0
Net equity raised/other 0 (747) 223 (56) (56)
Net financing cashflow 41 (31) 263 504 (56)
Incr/(decr) in net cash 219 716 797 519 76
Exch rate movements 10 0 0 0 -
Opening cash 213 442 1,158 1,955 2,473
Closing cash 442 1,158 1,955 2,473 2,549
Cash & equivalents 442 1,158 1,955 2,473 2,549
Debtors 260 307 268 282 315
Fixed assets 2,813 2,728 2,675 3,282 3,885
Intangible assets 86 86 86 86 86
Total assets 4,883 6,270 6,989 8,073 8,729
Short-term debt 203 - 720 360 360
Creditors 9 12 11 11 13
Minorities/other equity 0 (1) 0 0 (2)
Ratio analysis
Ebitda margin (%) 16.3 21.5 22.0 22.9 22.1
Net income margin (%) (0.4) 7.8 10.1 11.5 12.0
Dividend payout (%) - 0.0 0.0 0.0 0.0
Effective tax rate (%) (9.6) (0.7) (0.2) 0.0 0.0
Net debt/equity (%) 55.4 36.6 11.3 11.0 8.0
ROE (%) (0.4) 10.2 11.6 12.2 12.6
ROIC (%) 2.5 10.6 10.6 12.5 12.7
EVA
/IC (%) (7.7) 0.5 0.5 2.4 2.6

Expect gearing to stay
at healthy 8-11%
Cash balance to still
grow from US$2.0bn to
US$2.5bn - with help
from project loan
Free cashflow to fall in
2013-14 on investments
in Manila and Macau
Studio City
Revenue growth of
5-12% in 2013-14



Recommendation history of Melco Crown Entertainment Ltd (MPEL US)

17 October 2012 BUY 19.40 17 June 2011 BUY 15.40
08 August 2012 BUY 18.30 06 May 2011 BUY 13.00
11 June 2012 BUY 20.00 19 January 2011 BUY 12.20
09 May 2012 BUY 23.20 03 January 2011 BUY 8.80
16 April 2012 BUY 22.90 02 November 2010 BUY 8.50
10 February 2012 BUY 19.10 01 November 2010 BUY 8.00
16 November 2011 BUY 19.90 26 July 2010 BUY 4.90
20 September 2011 BUY 24.00 24 March 2010 O-PF 6.30
24 August 2011 BUY 17.20

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Aaron Fischer, CFA
Other analysts
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BUY
U-PF
O-PF
SELL

MGM China
HK$13.70 - BUY

Financials
Revenue (HK$m) 12,435 20,263 21,022 21,361 23,036
Net profit (HK$m) 1,566 3,280 4,243 3,795 4,107
EPS (HK) 41.2 86.3 111.6 99.9 108.1
CL/consensus (20) (EPS%) - - 94 83 77
EPS growth (% YoY) nm 109.4 29.4 (10.6) 8.2
PE (x) 33.2 15.9 12.3 13.7 12.7
Dividend yield (%) 0.0 6.0 5.4 5.8 6.3
FCF yield (%) 6.0 9.9 8.6 5.8 3.5
PB (x) 35.2 10.7 9.4 8.0 6.9
ROE (%) 180.8 103.2 81.6 63.1 58.3
Net debt/equity (%) 267.7 (29.8) (31.6) (24.9) (0.6)
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
Hong Kong
Hotels & Leisure

Reuters 2282.HK
Bloomberg 2282 HK
HK HSI @ 21,566.9

12M hi/lo HK$14.76/9.90

% potential +37%



HK$33.1m (US$4.3m)

Major shareholders
MGM Resorts International 51.0%

1M 3M 12M
Absolute 3.8 12.1 18.7
Relative 0.2 4.3 8.3

Source: Bloomberg
www.clsa.com
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14
16
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Jun 11 Nov 11 May 12 Nov 12
MGM China
Rel to HSI (RHS)
(HK$) (%)

Dividend-payout support
MGM Chinas earnings growth has been slowing, with the MGM Macau
property running at high capacity utilisation. We forecast efforts to
optimise gaming tables by adding a new VIP area to MGM Macau to
underpin a 5% Ebitda Cagr over 2011-13. We also expect its healthy cash
balance and strong free cashflow to drive a high dividend payout. We
maintain our BUY rating on MGM China, with our EV/Ebitda-based
HK$18.80 target implying 37% upside.
Investment thesis
MGM Chinas earnings growth has been slowing, but we should still see
further gains as it adds a new VIP area on the second floor of MGM Macau.
We also expect the companys net-cash balance and robust free cashflow to
underpin a sustainable high dividend payout. We forecast a 5-6% dividend
yield over 12-14CL.
Catalysts
The ongoing effort to improve table productivity at MGM Macau should be
the key near-term earnings driver. The increase in dividend payout from its
high cash balance should also be positive for the share price. Finally, the
market gradually pricing in the MGM Cotai project will give the stock
added impetus.
Earnings growth
We expect MGM China to deliver HK$21.0bn of revenue in 2012 and
HK$21.4bn in 2013, representing 2-4% 12-13CL annual increases. This slow
topline growth is due to the high capacity utilisation at MGM Macau limiting its
expansion potential. We estimate Ebitda of HK$5.1bn in 2012 (up 9% YoY)
and HK$5.2bn in 2013 (up 2%).
Valuation
We value MGM China by applying 11x 13CL EV/Ebitda to existing operations
and assuming HK$3.20 per share for MGM Cotai. Our HK$18.80 target implies
a 19x 13CL PE, which we believe is fair given this is still a discount to our
20-25x target PEs for other Chinese consumer-discretionary names.


MGM China - BUY Macau gaming





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1
2
3
4
5
6
7
2010 2011 12CL 13CL 14CL
MGM China Industry average (%)
na
(100)
(50)
0
50
100
150
200
2008 2009 2010 2011 12CL 13CL 14CL
(2)
0
2
4
6
8
10
12
(100)
0
100
200
300
400
500
600
700
800
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
512
(40)
(20)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
MGM China
Industry average
(%)
267.7 1,199.4 1,888.1
Expect MGM China to
remain net cash
over 2012-14



Summary financials
Revenue 12,435 20,263 21,022 21,361 23,036
Op Ebitda 2,798 4,734 5,137 5,216 5,625
Op Ebit 2,021 3,928 4,361 4,439 4,848
Other items (5) 35 (1) - 0
Taxation 0 (455) 89 (364) (394)
Minorities/Pref divs - - - - -
Net profit 1,566 3,280 4,243 3,795 4,107
Operating adjustments 128 (98) (162) (47) (40)
Working capital changes 432 1,400 (541) 90 102
Net interest/taxes/other 1 (448) 646 (328) (358)
Capital expenditure (258) (422) (603) (1,938) (3,488)
Free cashflow 3,102 5,166 4,477 2,994 1,842
Acq/inv/disposals 3 0 1 - -
Int, invt & associate div - - - - -
Net investing cashflow (255) (422) (603) (1,938) (3,488)
Increase in loans (2,667) (1,490) 0 5,425 0
Dividends 0 (476) (3,101) (2,800) (3,035)
Net equity raised/other (491) 467 (1,064) (317) (383)
Net financing cashflow (3,157) (1,498) (4,165) 2,308 (3,419)
Incr/(decr) in net cash (53) 3,668 313 5,302 (1,577)
Exch rate movements - - - - -
Opening cash 1,976 1,923 5,591 5,903 11,206
Closing cash 1,923 5,591 5,904 11,206 9,629
Debtors 1,137 549 503 545 590
Inventories 64 79 101 109 118
Fixed assets 5,380 4,998 4,968 6,274 9,130
Intangible assets 1,551 1,406 1,347 1,347 1,347
Other term assets - - - - 0
Total assets 10,224 12,689 12,943 19,609 20,951
Short-term debt - 207 416 416 416
Creditors 2,706 3,466 3,020 3,267 3,540
Provisions/other LT liabs 0 0 0 - -
Minorities/other equity 0 0 0 0 0
Ratio analysis
Ebitda margin (%) 22.5 23.4 24.4 24.4 24.4
Dividend payout (%) 0.0 94.5 66.0 80.0 80.0
Effective tax rate (%) 0.0 12.2 (2.1) 8.8 8.8
Net debt/equity (%) 267.7 (29.8) (31.6) (24.9) (0.6)
ROE (%) 180.8 103.2 81.6 63.1 58.3
ROIC (%) 33.7 77.8 123.8 93.4 71.1
EVA
/IC (%) 26.4 70.7 116.4 86.2 63.9

Net cash out to 2014
Cash balance of
HK$10-11bn in 2013-14
We forecast HK$2-3bn
free cashflow in 2013-14
Revenue to grow
2-8% in 2013-14



Recommendation history of MGM China Holdings Ltd (2282 HK)

17 October 2012 BUY 18.80 23 February 2012 BUY 15.20
10 September 2012 BUY 19.20 16 November 2011 BUY 16.50
08 August 2012 BUY 19.10 31 October 2011 BUY 18.90
11 June 2012 BUY 18.80 20 September 2011 BUY 21.40
16 April 2012 BUY 22.00 08 July 2011 O-PF 18.70
01 March 2012 BUY 17.60

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Aaron Fischer, CFA
Other analysts
No coverage
BUY
U-PF
O-PF
SELL

MGM Resorts
US$9.78 - BUY

Financials
Revenue (US$m) 6,019 7,849 9,082 9,220 9,515
Net income (US$m) (1,437) 3,115 (753) (379) (356)
EPS (US$) (3.19) 5.50 (1.54) (0.78) (0.73)
CL/consensus (22) (EPS%) - - 239 162 442
EPS growth (% YoY) nm nm (128.0) nm nm
PE (x) nm 1.8 nm nm nm
Dividend yield (%) 0.0 0.0 0.0 0.0 0.0
FCF yield (%) 6.7 6.7 2.8 (5.1) (7.7)
PB (x) 1.0 0.7 0.8 0.9 0.9
ROE (%) (39.1) 52.3 (4.7) (0.9) (0.4)
Net debt/equity (%) 413.3 125.8 137.0 151.4 169.4
Jon Oh
jon.oh@clsa.com
(1) 212 549 8818
Clifford Kurz, CFA
(1) 212 549 8819

15 November 2012
USA
Hotels & Leisure

Reuters MGM.N
Bloomberg MGM US
S&P 500 @ 1,377.5

12M hi/lo US$14.94/8.84

% potential +43%



US$96.2m (US$96.2m)

Major shareholders
Tracinda Corp 18.7%

1M 3M 12M
Absolute (6.1) (0.4) (9.6)
Relative (0.8) 1.4 (16.3)

Source: Bloomberg
www.clsa.com
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MGM Resorts
Rel to 500 (RHS)
(US$) (%)

Rejuvenated
Growth in Macau has slowed and the USA has seen patches of softness
during its recovery, but MGMs operations in both regions continue to see
improvements. In Las Vegas, the number of visitors grew 2% YoY in
1H12, on track for a new record. This should drive Revpar and Ebitda
growth. Meanwhile its Macau subsidiary, MGM China, has improved mass-
table yields and expanded its VIP operations. The 6% forecast dividend
yield from MGM China should help contain MGMs debt burden. BUY.
Investment thesis
Las Vegas Strip Revpar fell 3% during 3Q12, the first negative comp in 10
quarters. However, it has since improved, starting in September. Meanwhile,
MGM China continues to make adjustments to its mass-table configurations,
improving table yields across the segment and expanding its VIP footprint.
While MGM China is only a third of Ebitda, it accounts for the bulk of MGMs
valuation: the 51%-stake in MGM China represents 70% of MGMs current
market cap.
Catalysts
MGM China should undergo incremental earnings improvement as the
company optimises table productivity and expands its casino floor space.
Meanwhile, a high dividend payout from MGM China should help contain the
c.US$13bn debt burden at the parent company. Approval for the construction
of MGM Cotai should also help to drive share-price performance.
Earnings growth
We expect marginal improvements at MGMs wholly owned properties, with
Ebitda increases of 1-2% for 12CL (US$1.31bn) and 13CL (US$1.34bn). MGM
Chinas expansion will slow to 2% for 2013 (US$673m) as the property
becomes fully utilised, with little capacity for further growth.
Valuation
We base our US$14 target on a SOTP approach that ascribes a 7-12x
EV/Ebitda multiple for MGMs wholly owned and unconsolidated properties, an
HK$18.80 fair value for MGM China (covered by CLSAs Aaron Fischer) and a
60% discount to book value for City Center, MGMs latest Las Vegas
development.

MGM Resorts - BUY Macau gaming





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1
2
3
4
5
6
2010 2011 12CL 13CL 14CL
MGM Resorts Industry average (%)
na na na na na
(40)
(30)
(20)
(10)
0
10
20
30
40
50
60
2008 2009 2010 2011 12CL 13CL 14CL
MGM Resorts
Industry average
(%)
(2)
0
2
4
6
8
10
(100)
0
100
200
300
400
500
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
MGM Resorts
Industry average
(%)
(50)
0
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 12CL 13CL 14CL
MGM Resorts
Industry average
(%)
Expect net debt to remain
steady in 2012-14



Summary financials
Revenue 6,019 7,849 9,082 9,220 9,515
Op Ebitda 930 1,557 1,702 1,832 1,919
Op Ebit 297 739 765 909 984
Interest expense (1,114) (1,087) (1,118) (1,011) (1,036)
Other items (1,291) 3,298 (153) - -
Profit before tax (2,107) 2,951 (506) (102) (52)
Taxation 779 403 60 25 17
Net income (1,437) 3,115 (753) (379) (356)
Net income (1,437) 3,115 (753) (379) (356)
Working capital changes 199 69 68 (8) (13)
Non-operating adjustments 542 (3,503) (356) (287) (283)
Net operating cashflow 504 675 584 366 374
Capital expenditure (207) (301) (430) (650) (800)
Free cashflow 297 374 154 (284) (426)
Acq/inv/disposals (95) 369 363 8 46
Net investing cashflow (586) (21) (412) (700) (800)
Increase in loans (1,873) 718 (543) 47 3
Dividends 0 0 0 0 0
Net equity raised/other 398 (7) 0 0 0
Net financing cashflow (1,475) 712 (543) 47 3
Incr/(decr) in net cash (1,557) 1,366 (370) (287) (423)
Exch rate movements - 1 - - -
Opening cash 2,056 499 1,866 1,496 1,209
Closing cash 499 1,866 1,496 1,209 786
Cash & equivalents 499 1,866 1,496 1,209 786
Debtors 322 492 484 493 508
Inventories 96 113 112 114 118
Fixed assets 14,554 14,867 14,263 13,990 13,855
Intangible assets 420 7,945 7,877 7,877 7,877
Other term assets 599 507 507 507 507
Total assets 18,952 27,766 26,360 25,803 25,220
Short-term debt 371 659 660 672 694
Creditors 167 171 176 179 186
Other current liabs 708 915 1,065 1,065 1,065
Provisions/other LT liabs 2,527 2,502 2,502 2,502 2,502
Minorities/other equity 0 3,802 3,584 3,344 3,085
Ratio analysis
Ebitda growth (% YoY) (16.0) 67.3 9.3 7.7 4.7
Ebitda margin (%) 15.5 19.8 18.7 19.9 20.2
Net income margin (%) (23.9) 39.7 (8.3) (4.1) (3.7)
Dividend payout (%) - 0.0 - - -
Effective tax rate (%) 36.9 (13.7) 11.8 24.0 32.7
Net debt/equity (%) 413.3 125.8 137.0 151.4 169.4
ROE (%) (39.1) 52.3 (4.7) (0.9) (0.4)
ROIC (%) 1.2 4.3 3.0 3.1 3.0
EVA
/IC (%) (8.7) (8.1) (8.2) (7.4) (7.1)

Net gearing to edge up
from 137% in 2012 to
169% in 2014
We expect US$0.8-1.5bn
cash balances in 2012-14
We estimate
US$370-580m of 2012-14
operating cashflow
Revenue growth of
2-3% in 2013-14



Recommendation history of MGM Resorts International (MGM US)

01 November 2012 BUY 14.00 01 February 2012 BUY 16.00
08 August 2012 BUY 15.00 16 November 2011 BUY 15.00
12 June 2012 BUY 16.00 19 September 2011 BUY 16.00
17 April 2012 BUY 17.00 08 July 2011 O-PF 16.00

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BUY
U-PF
O-PF
SELL

Sands China
HK$30.50 - BUY

Financials
Revenue (US$m) 4,142 4,896 6,295 7,961 8,727
Net profit (US$m) 678 1,119 1,189 1,880 2,240
EPS (US) 8.4 13.9 14.8 23.4 27.8
CL/consensus (24) (EPS%) - - 93 104 99
EPS growth (% YoY) 214.3 64.9 6.3 58.1 19.1
PE (x) 46.6 28.2 26.6 16.8 14.1
Dividend yield (%) 0.0 3.8 3.7 4.7 5.7
FCF yield (%) 3.2 2.2 1.9 3.4 6.1
PB (x) 7.2 5.7 5.7 5.7 5.2
ROE (%) 16.9 22.7 21.5 34.0 38.5
Net debt/equity (%) 48.0 16.6 29.4 45.4 38.2
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
Hong Kong
Hotels & Leisure

Reuters 1928.HK
Bloomberg 1928 HK
HK HSI @ 21,566.9

12M hi/lo HK$33.05/19.96

% potential +16%



HK$340.5m (US$43.9m)

Major shareholders
Las Vegas Sands 70.3%

1M 3M 12M
Absolute 11.1 22.0 26.8
Relative 7.3 13.5 15.7

Source: Bloomberg
www.clsa.com
60
80
100
120
140
160
180
200
220
240
10
15
20
25
30
35
Sands China
Rel to HSI (RHS)
(HK$) (%)

Shining star
Sands China offers investors both growth and dividends. We expect the
opening of Sands Cotai Central and an improvement in the junket VIP
segment to help it deliver a 26% Ebitda Cagr over 2012-13. We forecast
improving free cashflow and a 4-6% dividend yield in 2012-14.
Resolution of the standstill at the Four Seasons apartment hotel would be
a near-term catalyst. We maintain our BUY recommendation, with our
HK$35.30 target implying 16% absolute upside or a 20% total return.
Investment thesis
Sands China offers investors both growth and dividends. We expect the
company to deliver the strongest earnings growth in our coverage in the next
two years, thanks to the phased opening of Sands Cotai Central (SCC) in
2012. Following this, we estimate Sands will control 58% of Macaus hotel
rooms and 27% of its gaming tables. Free cashflow will also improve with
SCCs completion, supporting generous dividend payments. We forecast
Sands to deliver 4-6% dividend yields in 2012-14: this is one of the highest
rates in the Asian big-cap universe.
Catalysts
The successful opening of SCC and the ramping up of market share in the
junket VIP segment will boost the stock. Resolution of the Four Seasons
apartment hotel standstill is a further potential near-term share-price catalyst.
Finally, the market gradually pricing in The Parisian (Sands Site 3), where the
company has recently received government approval, is also positive.
Growth estimate
We expect Sands China to increase net revenue by 29% to US$6,295m in
2012 and by a further 26% to US$7,961m in 2013. This strong topline growth
should translate into a significant 20% jump in Ebitda in 2012 (to
US$1,850m) and a 34% rise (to US$2,471m) in 2013.
Valuation
We value Sands China by applying 15x 13CL EV/Ebitda to existing
operations, and HK$2.20 per share for the Parisian (Sands Site 3). Our
HK$35.30 target price implies a 19x 13CL, which we believe is fair given that
this is still a discount to our 20-25x target PEs for other Chinese consumer-
discretionary names.

Sands China - BUY Macau gaming





0
1
2
3
4
5
6
2010 2011 12CL 13CL 14CL
Sands China Industry average (%)
na
(10)
0
10
20
30
40
50
2008 2009 2010 2011 12CL 13CL 14CL
(8)
(6)
(4)
(2)
0
2
4
6
8
(2,000)
(1,500)
(1,000)
(500)
0
500
1,000
1,500
2,000
2,500
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
Sands China Industry average
3,009
(%)
(40)
(20)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
258.1
Expect net gearing
to remain healthy at
30-45% in 2012-14



Summary financials
Revenue 4,142 4,896 6,295 7,961 8,727
Op Ebitda 1,189 1,548 1,850 2,471 2,831
Op Ebit 875 1,276 1,527 2,019 2,359
Other items (78) (110) (299) (60) (10)
Profit before tax 682 1,121 1,189 1,880 2,240
Taxation (4) (2) - - -
Net profit 678 1,119 1,189 1,880 2,240
Operating profit 875 1,276 1,527 2,019 2,359
Working capital changes 133 30 (155) (228) (168)
Net interest/taxes/other 41 (169) (69) 26 83
Capital expenditure (346) (700) (1,036) (1,205) (800)
Free cashflow 1,016 709 590 1,064 1,946
Acq/inv/disposals 4 - (9) - -
Int, invt & associate div (756) 450 18 19 19
Net investing cashflow (1,099) (250) (1,027) (1,186) (781)
Increase in loans 69 (335) (165) 0 1,000
Dividends 0 0 (1,201) (1,872) (1,661)
Net equity raised/other (198) 624 (75) (98) (128)
Net financing cashflow (129) 289 (1,442) (1,970) (789)
Incr/(decr) in net cash 136 1,448 (842) (887) 1,176
Exch rate movements (3) 2 - - -
Opening cash 909 1,041 2,491 1,649 762
Closing cash 1,041 2,491 1,649 762 1,938
Cash & equivalents 1,041 2,491 1,649 762 1,938
Debtors 292 557 635 775 849
Fixed assets 5,503 6,250 6,869 7,622 7,950
Total assets 8,475 10,128 9,999 10,007 11,586
Short-term debt 387 80 48 48 48
Creditors 960 1,180 1,180 1,180 1,180
Ratio analysis
Ebitda margin (%) 28.7 31.6 29.4 31.0 32.4
Dividend payout (%) 0.0 107.4 99.9 80.0 80.0
Net debt/equity (%) 48.0 16.6 29.4 45.4 38.2
ROE (%) 16.9 22.7 21.5 34.0 38.5
ROIC (%) 16.4 22.3 25.2 29.5 31.5
EVA
/IC (%) 9.9 15.8 18.7 23.0 25.0

We expect 10-27%
revenue growth in
2013-14
We forecast 19-58% net
profit growth in 2013-14
Free cashflow to increase
from US$590m in 2012 to
US$1.9bn in 2014
We expect net margin to
improve from 19% in
2012 to 26% in 2014



Recommendation history of Sands China Ltd (1928 HK)

17 October 2012 BUY 35.30 20 September 2011 BUY 36.10
10 September 2012 BUY 35.70 06 May 2011 BUY 27.80
26 July 2012 BUY 33.30 02 March 2011 BUY 26.60
16 April 2012 BUY 37.60 28 October 2010 BUY 21.20
20 February 2012 O-PF 35.50 26 July 2010 BUY 19.00
02 February 2012 BUY 35.50 24 March 2010 BUY 17.00
16 November 2011 BUY 29.30 20 January 2010 BUY 14.00
28 October 2011 BUY 36.40

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Aaron Fischer, CFA
Other analysts
No coverage
BUY
U-PF
O-PF
SELL

SJM
HK$17.20 - BUY

Financials
Revenue (HK$m) 57,728 76,093 78,282 84,668 91,152
Net profit (HK$m) 3,557 5,308 6,453 7,084 7,858
EPS (HK) 65.2 96.1 116.4 127.8 141.7
CL/consensus (24) (EPS%) - - 99 98 99
EPS growth (% YoY) 202.4 47.4 21.1 9.8 10.9
PE (x) 26.4 17.9 14.8 13.5 12.1
Dividend yield (%) 2.0 4.2 5.4 5.9 6.6
FCF yield (%) 7.9 8.0 8.4 8.1 7.1
PB (x) 7.0 5.5 5.5 4.9 4.5
ROE (%) 32.4 34.9 37.1 38.1 38.3
Net debt/equity (%) (34.4) (61.0) (51.9) (56.7) (52.1)
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
Hong Kong
Hotels & Leisure

Reuters 0880.HK
Bloomberg 880 HK
HK HSI @ 21,566.9

12M hi/lo HK$18.18/11.68

% potential +35%



HK$98.5m (US$12.7m)

Major shareholders
STDM 61.0%

1M 3M 12M
Absolute 5.1 13.9 21.5
Relative 1.5 6.0 10.8

Source: Bloomberg
www.clsa.com
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140
160
180
200
220
240
6
8
10
12
14
16
18
20
22
SJM (LHS)
Rel to HSI
(HK$) (%)

Our yield play
SJM is our preferred yield play in the Macau gaming industry. We expect
the company to enjoy a 12% Ebitda Cagr over 2012-13, with efforts to
optimise gaming tables by moving them from satellite casinos to the
Grand Lisboa the key driver. Its high cash balance and strong free
cashflow will also ensure a defensive dividend stream. We maintain our
BUY call on SJM with our HK$23.20 target - based on 11x 13CL EV/Ebitda
and HK$3.00 for SJM Cotai - implying 35% upside.
Investment thesis
SJMs long operating track record in Macau and its renowned Lisboa brand
continue to drive arrivals at its properties. Earnings growth has been slowing,
but we should still see a further increase in visitors to the Grand Lisboa as the
company adds more gaming tables. We also expect the companys high cash
balance (HK$22bn as of June 2012, or HK$4.0 per share) and robust free
cashflow to underpin a sustainable high dividend payout. We forecast 5-7%
2012-14 dividend yields.
Catalysts
The continuing effort to optimise gaming tables by moving them from satellite
casinos to the Grand Lisboa should be the key earnings driver. Raising the
dividend payout with its elevated cash balance will also be positive for the
share price. Finally, the market gradually pricing in the SJM Cotai project is
also a key catalyst.
Growth estimate
We expect SJM to increase revenue by 3% to HK$78bn in 2012 and by a
further 8% to HK$85bn in 2013, with the limited topline increases in 2012-13
due to the minimal growth potential at the satellite casinos. We forecast
HK$7.5bn Ebitda in 2012 (up 14% YoY) and HK$8.2bn in 2013 (up 10%)
despite market-share shifts to Cotai-dominant operators.
Valuation
We value SJM by applying 11x 13CL EV/Ebitda to existing operations and
HK$3.00 for SJM Cotai. Our HK$23.20 target implies an 18x 13CL PE, which
we believe is fair given that this is still a discount to our 20-25x target PEs for
other Chinese consumer-discretionary names.


SJM - BUY Macau gaming





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2
3
4
5
6
7
2010 2011 12CL 13CL 14CL
SJM Industry average (%)
(30)
(20)
(10)
0
10
20
30
40
50
2008 2009 2010 2011 12CL 13CL 14CL
(4)
(2)
0
2
4
6
8
10
(400)
(200)
0
200
400
600
800
1,000
1,200
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow FCF yield (RHS) (US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
368
(80)
(60)
(40)
(20)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
SJM to remain net
cash in 2012-14



Summary financials
Revenue 57,728 76,093 78,282 84,668 91,152
Op Ebitda 4,838 6,615 7,481 8,244 9,101
Op Ebit 3,661 5,494 6,355 7,106 7,976
Other items 10 (202) (24) (38) (38)
Taxation (18) (35) (37) (55) (61)
Minorities/Pref divs 45 3 15 59 65
Net profit 3,557 5,308 6,453 7,084 7,858
Depreciation/amortization 1,177 1,121 1,126 1,138 1,125
Working capital changes 3,087 832 (1,456) 1,221 982
Net interest/taxes/other 341 961 2,780 593 587
Capital expenditure (846) (846) (811) (2,350) (3,900)
Free cashflow 7,420 7,562 7,993 7,708 6,770
Acq/inv/disposals - - - - -
Int, invt & associate div (3,856) 35 (2,407) 116 159
Net investing cashflow (4,702) (811) (3,218) (2,234) (3,741)
Increase in loans (1,040) (1,040) 883 0 3,875
Dividends (716) (2,093) (6,299) (5,186) (5,961)
Net equity raised/other 393 (43) (732) (731) (864)
Net financing cashflow (1,363) (3,175) (6,148) (5,917) (2,950)
Incr/(decr) in net cash 2,202 4,421 (561) 1,907 3,979
Exch rate movements 0 0 0 0 0
Opening cash 7,937 10,139 14,560 13,999 15,906
Closing cash 10,139 14,560 13,999 15,906 19,885
Debtors 1,258 1,318 1,026 1,148 1,204
Other current assets 5,946 6,333 8,413 8,413 8,413
Fixed assets 9,609 8,930 8,712 9,930 12,711
Total assets 28,889 33,020 34,460 37,700 44,510
Short-term debt 1,040 3,072 2,347 2,347 2,347
Creditors 10,021 11,339 12,001 13,343 14,381
Long-term debt/CBs 4,562 974 2,584 2,584 6,459
Provisions/other LT liabs - 0 0 - -
Ratio analysis
Ebitda margin (%) 8.4 8.7 9.6 9.7 10.0
Dividend payout (%) 53.6 75.5 80.5 80.0 80.0
Ebitda/net int exp (x) 34.1 - - - 107.2
Net debt/equity (%) (34.4) (61.0) (51.9) (56.7) (52.1)
ROE (%) 32.4 34.9 37.1 38.1 38.3
ROIC (%) 43.4 72.3 84.7 85.0 86.2
EVA
/IC (%) 36.1 65.0 77.4 77.7 78.9

Net margin to
be largely flat
We expect cash
balance to increase from
HK$14bn to HK$20bn
We forecast HK$7-8bn
free cashflow in 2012-14
Revenue to grow
8% pa in 2013-14



Recommendation history of SJM Holdings Ltd (880 HK)

17 October 2012 BUY 23.20 06 May 2011 BUY 25.00
10 September 2012 BUY 23.50 16 March 2011 BUY 18.50
08 August 2012 BUY 22.70 19 January 2011 BUY 18.40
11 June 2012 BUY 22.50 03 January 2011 O-PF 13.70
07 May 2012 BUY 25.50 08 November 2010 O-PF 13.00
16 April 2012 BUY 25.00 26 July 2010 BUY 9.30
29 February 2012 BUY 22.30 29 March 2010 BUY 7.00
16 November 2011 BUY 19.80 24 March 2010 BUY 7.10
08 November 2011 BUY 26.20 13 December 2009 BUY 6.30
20 September 2011 BUY 27.00

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Other analysts
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BUY
U-PF
O-PF
SELL

Wynn Macau
HK$22.65 - BUY

Financials
Revenue (HK$m) 22,439 29,371 28,480 30,299 32,580
Net profit (HK$m) 4,422 5,891 6,421 6,688 7,320
EPS (HK) 85.2 113.6 123.8 128.9 141.1
CL/consensus (24) (EPS%) - - 97 90 89
EPS growth (% YoY) 113.8 33.2 9.0 4.2 9.5
PE (x) 26.6 19.9 18.3 17.6 16.1
Dividend yield (%) 3.4 5.3 4.4 4.6 5.0
FCF yield (%) 5.0 7.2 5.0 3.1 1.0
PB (x) 27.3 29.2 22.1 17.7 14.5
ROE (%) 109.6 141.5 137.0 111.2 98.7
Net debt/equity (%) 26.3 (11.4) (22.3) 15.2 77.3
Aaron Fischer, CFA
(852) 26008256
Richard Huang
(852) 26008455
Mariana Kou, CFA
(852) 26008190

15 November 2012
Hong Kong
Hotels & Leisure

Reuters 1128.HK
Bloomberg 1128 HK
HK HSI @ 21,566.9

12M hi/lo HK$25.50/14.62

% potential +20%



HK$117.9m (US$15.2m)

Major shareholders
Wynn Resorts 72.3%

1M 3M 12M
Absolute 10.5 25.3 0.7
Relative 6.7 16.6 (8.1)

Source: Bloomberg
www.clsa.com
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14
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18
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22
24
26
28
30
Wynn Macau
Rel to HSI (RHS)
(HK$) (%)

Defensive player
Wynn Macau continues to benefit from its premium positioning and loyal
customer base, which should protect the company during recessions. Its
property Ebitda has flattened out, but its defensive earnings stream and
strong free cashflow make it an attractive dividend play. The market
gradually pricing in Wynn Cotai should drive further share-price
outperformance. We maintain our BUY recommendation, with our
HK$27.10 target suggesting 20% upside on top of a 4-5% dividend yield.
Investment thesis
The Wynn Macau property continues to benefit from its premium positioning
and its pool of loyal gamblers, insulating it from recessions. Wynn Macaus
earnings have flattened out over the past few quarters and we see limited
growth from the current level. Despite that, we believe the companys profits
are highly defensive, making it an attractive yield play.
Catalysts
The market gradually pricing in the Wynn Cotai project will be the key share-
price catalyst. The company recently received final government approval and
is planning to build out the US$3.5bn property in the next 46 months. In the
shorter term, the company also benefits from various upgrades at the Wynn
Macau property, with the expansion of the retail and VIP gaming area.
Earnings growth
We expect net revenue to fall 3% in 2012 before rebounding by 6% in 2013.
Slower growth in 2012-13 reflects market-share losses to Cotai players (like
Sands China) and the fact that the Wynn Macau property is already running
at high capacity utilisation. We forecast adjusted Ebitda to drop 3% in 2012
and increase 8% in 2013.
Valuation
We value Wynn Macau by applying a 13x 13CL EV/Ebitda multiple to existing
operations and adding HK$6.50 for Wynn Cotai. Our HK$27.10 target price
implies a 21x 13CL PE, which we believe is fair given that it is still a discount
to our 20-25x target PEs for other Chinese consumer-discretionary names.


Wynn Macau - BUY Macau gaming





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1
2
3
4
5
6
2010 2011 12CL 13CL 14CL
Wynn Macau Industry average (%)
(40)
(20)
0
20
40
60
80
100
120
140
160
2008 2009 2010 2011 12CL 13CL 14CL
0
1
2
3
4
5
6
7
8
0
200
400
600
800
1,000
1,200
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
(40)
(20)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
736
Net gearing to increase to
77% in 2014 as the
company spends on
Wynn Cotai



Summary financials
Revenue 22,439 29,371 28,480 30,299 32,580
Op Ebitda 5,876 7,885 7,681 8,310 9,129
Op Ebit 4,887 6,868 6,715 7,300 8,110
Other items (167) (793) (128) (147) (149)
Taxation (44) 27 (8) 0 0
Net profit 4,422 5,891 6,421 6,688 7,320
Operating adjustments 47 1,512 0 0 0
Depreciation/amortization 990 1,016 966 1,010 1,019
Working capital changes 922 (238) 294 619 40
Net interest/taxes/other 33 259 (1) (169) 292
Capital expenditure (1,016) (931) (2,123) (5,150) (8,250)
Free cashflow 5,862 8,486 5,850 3,611 1,211
Acq/inv/disposals - (575) 0 - -
Int, invt & associate div - - 63 78 78
Net investing cashflow (1,016) (1,506) (2,060) (5,072) (8,172)
Increase in loans (3,117) (187) (1,745) 8,913 0
Dividends (3,900) (6,225) (5,137) (5,350) (5,856)
Net equity raised/other (255) (58) 80 (248) (423)
Net financing cashflow (7,272) (6,470) (6,802) 3,314 (6,279)
Incr/(decr) in net cash (1,410) 1,441 (889) 7,004 (4,990)
Exch rate movements - - - - -
Opening cash 5,229 3,819 5,157 3,972 10,679
Closing cash 3,819 5,261 4,268 10,975 5,689
Debtors 485 750 451 498 535
Inventories 174 180 157 173 186
Fixed assets 8,377 7,725 8,536 12,698 19,952
Total assets 14,348 17,360 16,832 27,771 29,794
Short-term debt - 2,303 1,114 1,114 1,114
Creditors 1,018 1,050 1,087 1,199 1,289
Other current liabs 3,963 5,972 6,000 6,577 7,046
Provisions/other LT liabs 121 1,505 1,320 1,320 1,320
Ratio analysis
Revenue growth (% YoY) 59.4 30.9 (3.0) 6.4 7.5
Ebitda growth (% YoY) 81.2 34.2 (2.6) 8.2 9.9
Ebitda margin (%) 26.2 26.8 27.0 27.4 28.0
Dividend payout (%) 89.2 105.7 80.0 80.0 80.0
Effective tax rate (%) 1.0 (0.5) 0.1 0.0 0.0
Net debt/equity (%) 26.3 (11.4) (22.3) 15.2 77.3
ROE (%) 109.6 141.5 137.0 111.2 98.7
ROIC (%) 84.7 174.5 220.1 145.0 79.7
EVA
/IC (%) 77.4 167.2 212.8 137.7 72.4

Revenue to grow
6-7% in 2013-14
We forecast 4-10% net
profit growth in 2013-14
We expect HK$1-4bn free
cashflow in 2013-14
Net margin to be flat
at around 22%



Recommendation history of Wynn Macau Ltd (1128 HK)

17 October 2012 BUY 27.10 20 September 2011 BUY 38.40
10 September 2012 BUY 26.90 06 May 2011 BUY 34.50
18 July 2012 BUY 26.60 11 February 2011 BUY 31.00
08 May 2012 BUY 30.50 02 January 2011 BUY 22.70
16 April 2012 BUY 31.10 03 November 2010 BUY 22.00
01 March 2012 BUY 28.40 01 November 2010 BUY 19.30
03 February 2012 BUY 27.00 26 July 2010 BUY 16.30
18 November 2011 BUY 28.30 24 March 2010 BUY 13.80
16 November 2011 BUY 29.00 10 November 2009 BUY 12.00
20 October 2011 BUY 36.20

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Other analysts
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BUY
U-PF
O-PF
SELL

Wynn Resorts
US$109.25 - BUY

Financials
Revenue (US$m) 4,185 5,270 5,115 5,384 5,719
Net income (US$m) 160 613 528 607 663
EPS (US$) 1.29 4.88 5.06 6.00 6.57
CL/consensus (24) (EPS%) - - 93 97 96
EPS growth (% YoY) 660.0 277.8 3.7 18.6 9.4
PE (x) 84.6 22.4 21.6 18.2 16.6
Dividend yield (%) 7.8 5.9 8.7 7.3 6.8
FCF yield (%) 5.7 9.7 7.4 3.6 1.6
PB (x) 6.0 6.5 nm nm nm
ROE (%) 11.4 35.8 70.8 nm Nm
Net debt/equity (%) 102.6 119.6 nm nm nm
Jon Oh
jon.oh@clsa.com
(1) 212 549 8818
Clifford Kurz, CFA
(1) 212 549 8819

15 November 2012
USA
Hotels & Leisure

Reuters WYNN.OQ
Bloomberg WYNN US
S&P 500 @ 1,377.5

12M hi/lo US$138.28/90.11

% potential +16%



US$179.5m (US$179.5m)

Major shareholders
Waddell & Reed 16.4%
Stephen Wynn 10.0%

1M 3M 12M
Absolute (3.0) 6.4 (15.3)
Relative 2.5 8.3 (21.6)

Source: Bloomberg
www.clsa.com
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150
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100
110
120
130
140
150
160
170
Wynn Resorts
Rel to 500 (RHS)
(US$) (%)

Income appeal
Macau revenue has slowed with more cautious junket financing. While
this has hit growth at Wynn Resorts 72%-owned subsidiary, Wynn
Macau, the Asian property continues to enjoy occupancy above 90%, with
Ebitda margins of 30-32%. Wynn continues to solidify its position as the
best steward of capital in the industry, declaring a US$7.50 special
dividend for 2012. Wynns operating FCF implies a sustainable dividend of
US$7-8 for 2013-14. We are BUYers and maintain our US$127 target.
Investment thesis
Given slowing credit in Macau, future growth at Wynn Macau will be mundane
until the completion of Wynn Cotai sometime in early 2016. However, with
US$1.2-1.3bn in operating FCF and 70% of Wynn Cotais capital spending
funded by debt, Wynn Resorts should be able to sustain dividends of US$7-8
per share.
Catalysts
The key share-price catalyst remains the valuation for its US$3.5-4bn Wynn
Cotai project, which we believe the share price does not yet fully reflect. We
value the project at US$31/share at the parent level, assuming a 23% ROIC.
However, this could be conservative, as existing casinos have achieved ROICs
of 25-40%. Meanwhile, the company should also benefit from Wynn Macaus
expansion of its VIP segment, adding another junket room this Christmas,
and the growth of its retail space.
Earnings growth
Wynn Macaus 2012 Ebitda of US$1.17bn represents a 2% decline from 2011
due to a low hold rate during 1H12. We maintain our 2013 Macau Ebitda of
US$1.27bn, which implies 9% growth. Wynn Las Vegass Ebitda growth will
fluctuate from -17% in 12CL (US$375m) to +5% in 13CL (US$393m) as the
property experiences volatility in its table-win percentages.
Valuation
Our US$127 SOTP-derived target applies a 10x EV/Ebitda to the Las Vegas
property, a HK$27.10 fair value to Wynn Macau (covered by CLSAs Aaron
Fischer), which includes HK$6.50 for Wynn Cotai, a 12x EV/Ebitda to royalties
received from Wynn Macau, and a US$5 discount for risks associated with the
current dispute with Japanese businessman, Kazuo Okada.

Wynn Resorts - BUY Macau gaming





0
1
2
3
4
5
6
7
8
9
2010 2011 12CL 13CL 14CL
Wynn Resorts Industry average (%)
0
10
20
30
40
50
60
70
80
2008 2009 2010 2011 12CL 13CL 14CL
Wynn Resorts Industry average (%)
nm nm
(8)
(6)
(4)
(2)
0
2
4
6
8
10
12
14
(1,000)
(500)
0
500
1,000
1,500
2008 2009 2010 2011 12CL 13CL 14CL
Free cashflow
FCF yield (RHS)
(US$m) (%)
0
20
40
60
80
100
2008 2009 2010 2011 12CL 13CL 14CL
Wynn Resorts Industry average
186
(%)
(50)
0
50
100
150
200
250
2008 2009 2010 2011 12CL 13CL 14CL
Wynn Resorts Industry average
nm nm nm
(%)
Shareholders equity goes
negative as the company
issued a 10-year bond
to buy back shares
from Okada



Summary financials
Revenue 4,185 5,270 5,115 5,384 5,719
Op Ebitda 1,162 1,650 1,547 1,656 1,789
Op Ebit 757 1,252 1,172 1,277 1,405
Other items (200) (225) (147) (127) (127)
Profit before tax 336 804 751 855 936
Taxation (20) 20 8 (9) (9)
Net income 160 613 528 607 663
Net income 160 613 528 607 663
Working capital changes 173 147 (17) 25 33
Non-operating adjustments 319 357 218 236 255
Capital expenditure (284) (184) (263) (855) (1,155)
Free cashflow 773 1,332 840 393 181
Acq/inv/disposals (12) (275) - - -
Net investing cashflow (296) (459) (263) (855) (1,155)
Increase in loans (239) (28) 3,700 0 1,299
Dividends (1,192) (1,041) (3,064) (989) (955)
Net equity raised/other (61) 11 - - -
Net financing cashflow (1,493) (1,058) 635 (990) 344
Incr/(decr) in net cash (731) (1) 1,476 (597) 526
Exch rate movements (2) 5 0 0 0
Opening cash 1,992 1,258 1,263 2,738 2,141
Closing cash 1,258 1,263 2,738 2,141 2,667
Debtors 187 238 224 236 251
Fixed assets 4,921 4,865 4,754 5,229 5,999
Total assets 6,674 6,899 8,270 8,158 9,473
Short-term debt 3 408 - - -
Creditors 168 172 177 183 193
Shareholder funds 2,238 2,089 (262) (451) (531)
Ratio analysis
Revenue growth (% YoY) 37.4 25.9 (2.9) 5.3 6.2
Ebitda growth (% YoY) 55.8 42.0 (6.2) 7.1 8.0
Ebitda margin (%) 27.8 31.3 30.2 30.8 31.3
Net income margin (%) 3.8 11.6 10.3 11.3 11.6
Dividend payout (%) 657.9 133.2 187.7 133.1 113.6
Effective tax rate (%) 6.1 (2.4) (1.0) 1.0 1.0
Net debt/equity (%) 102.6 119.6 nm nm nm
ROE (%) 11.4 35.8 70.8 nm nm
ROIC (%) 14.1 25.8 23.7 24.4 23.9
EVA
/IC (%) (0.4) 11.4 9.3 9.9 9.4

Net margin to expand
from 10.3% to 11.6%
We forecast US$2-3bn
cash balances in 2012-14
We estimate
US$180-840m free
cashflow in 2012-14
Revenue to grow
5-6% pa in 2013-14



Recommendation history of Wynn Resorts Ltd (WYNN US)

25 October 2012 BUY 127.00 19 July 2011 O-PF 183.00
18 July 2012 BUY 125.00 20 April 2011 O-PF 153.00
12 June 2012 BUY 135.00 11 February 2011 O-PF 150.00
22 February 2012 BUY 150.00 02 February 2011 O-PF 143.00
31 January 2012 BUY 140.00 11 January 2011 O-PF 127.00
16 November 2011 O-PF 160.00 20 November 2010 O-PF 120.00
20 October 2011 O-PF 173.00 05 November 2010 O-PF 128.00
19 September 2011 O-PF 185.00

100
150
200
S
t
o
c
k

p
r
i
c
e

(
U
S
$
)
Jon Oh
Other analysts
No coverage
BUY
U-PF
O-PF
SELL

Macau gaming


Notes


Important disclosures Macau gaming

Companies mentioned
Galaxy (27 - HK$27.45 - BUY)
Las Vegas Sands (LVS - US$43.46 - BUY)
Melco Crown (MPEL - US$14.49 - BUY)
MGM China (2282 - HK$13.20 - BUY)
MGM Resorts (MGM - US$9.59 - BUY)
Sands China (1928 - HK$29.75 - BUY)
SJM (880 - HK$17.82 - BUY)
Wynn Macau (1128 - HK$22.55 - BUY)
Wynn Resorts (WYNN - US$107.42 - BUY)

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Macau gaming

Sector outlook - Overweight

, ie, economic value added. High

) is a good proxy to size of the

/IC (%) 5.5 12.5 28.0 26.8 27.1

/IC (%) (8.5) (2.1) (1.3) 2.0 2.8

/IC (%) (7.7) 0.5 0.5 2.4 2.6

/IC (%) 26.4 70.7 116.4 86.2 63.9

/IC (%) (8.7) (8.1) (8.2) (7.4) (7.1)

/IC (%) 9.9 15.8 18.7 23.0 25.0

/IC (%) 36.1 65.0 77.4 77.7 78.9

/IC (%) 77.4 167.2 212.8 137.7 72.4

/IC (%) (0.4) 11.4 9.3 9.9 9.4

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