• About Us
  • The Team
  • Advertise with Us

The latest news on the gaming industry in Asia

() () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () () ()
  • Home
  • Macau
  • Philippines
  • Singapore
  • Japan
  • Rest of Asia
  • World
  • Industry Talk
  • Trends & Tech
  • iGaming
  • follow
    • Facebook
    • Twitter
    • RSS Feed
    • LinkedIn

Macau market wisdoms should be questioned: Nomura

Jan 19, 2016 Newsdesk Latest News, Macau, Top of the deck  


Macau market wisdoms should be questioned: Nomura

There are “three conventional wisdoms” about the Macau casino market that need to be challenged if investors are to gain a holistic view on the stocks of the city’s gaming operators, says a report from Japanese brokerage Nomura.

It says the three “wisdoms” are: that there is little risk of disappointment regarding mass market demand for gambling in Macau; that there is no balance sheet risk to the Macau operators; and that the most effective way of analysing the pricing of the Macau operators’ stock is using in each case the calculation of enterprise value (EV) over earnings before interest, taxation, depreciation and amortisation (EBITDA).

“While our mass gaming growth forecast of 9 percent in 2016 full year is already close to the lower-end of the consensus forecast range, we believe there could still be risk of disappointment, with our concern stemming from three deteriorating macro trends: declining lottery sales in China from 2015; a depreciating renminbi [Chinese currency] (down 10 percent in the past two years); and declining Chinese visitation (down 4 percent year to date to November 2015 [the most recent data], with more severe declines from Shanghai and Beijing at -9 percent and -13 percent,” stated Tuesday’s report.

Brokerage Sanford C. Bernstein Ltd nonetheless said in a note on Monday that 2016 was likely to be “a year of inflection” for Macau, with mass-market gambling resuming growth.

Balance sheet stress

Regarding the potential for balance sheet risk for Macau operators, Nomura notes that “the U.S. is entering an interest rate up cycle,” potentially increasing interest payable on project loans issued under the Hong Kong Interbank Offered Rate (HIBOR) system. The Hong Kong dollar’s exchange rate on international markets is pegged to that of the U.S. dollar.

The Japanese brokerage referred as an example to the debt raised to build the US$4.1-billion Wynn Macau Ltd’s Wynn Palace resort, which is due to open on June 25.

“The build out of Wynn Palace is bringing Wynn Macau’s balance sheet to relatively risky levels, as we forecast the company’s net debt to EBITDA to reach 2.4x to 4.5x in 2016-17… Interest coverage is also expected to hit 2.8x to 2.9x in 2016-17… exposing the company to future interest rate risks as most of the interest is HIBOR-linked,” stated Nomura.

The brokerage also referred to MGM China Holdings Ltd’s MGM Cotai project. In August, MGM China said the HKD24-billion (US$3.1-billion) scheme remained “on schedule” for a fourth quarter 2016 opening. The quoted budget excludes land costs and capitalised interest.

“The build-out of MGM Cotai is bringing the balance sheet to relatively risky levels, with net debt to EBITDA expected to reach 2.7x to 4.2x in 2016-17,” said Nomura.

Industry valuations

Regarding the third “conventional wisdom” – judging stock price by EV/EBITDA – the report said: “it fails to reflect the sector’s significantly crippled earnings flow-through”.

Referring to the recent earnings cycle at Genting Singapore Plc, operator of the Resorts World Sentosa casino resort in Singapore, report authors Richard Huang, Stella Xing, Harry Curtis and Kelvin Wong noted: “We saw a structural decline in Genting Singapore’s EV/EBITDA since mid-2014, and we expect the same to happen in Macau. We encourage investors to take a more holistic approach to assess industry valuations by focusing not only on EV/EBITDA, but also price to earnings, free cash flow yield and dividend yields.”

The brokerage recommends “investors focus on defensive stocks with high dividend yields, like Sands China [Ltd]”, noting that “95 percent” of EBITDA at Sands China came from “non-VIP sources”.

Sanford Bernstein’s analysts Vitaly Umansky, Simon Zhang and Bo Wen said in their Monday note: “We remain more inclined towards Sands China (due to mass dominance, critical mass on Cotai and focus on return of capital) and Melco Crown [Entertainment Ltd] (largely stemming from outperformance in premium mass and the Studio City project).”

The Sanford Bernstein team had said in a note on Friday that valuation levels for Macau casino names “have become attractive (especially for longer-term investors) and we believe 2016 will be an inflection point with growth in mass gross gaming revenue and non-gaming revenue with stability in margins”.


  • tweet
Related articles
  • Sands China to revitalise firecracker factory, old streets
    Sands China to revitalise firecracker...

    Sep 29, 2023  

  • Wynn Macau Ltd, Broadway Asia tie up for resident show
    Wynn Macau Ltd, Broadway Asia tie up...

    Sep 26, 2023  

More news
  • Macau September GGR down 13pct on August: govt
    Macau September GGR down 13pct...

    Oct 01, 2023  

  • Bloomberry aims to raise up to US$99mln via share sale
    Bloomberry aims to raise up to US$99mln...

    Sep 29, 2023  


Latest News

Macau September GGR down 13pct on August: govt

Macau September GGR down 13pct on August: govt

Oct 01, 2023  

Macau’s September casino gross gaming revenue (GGR) fell by 13.2 percent month-on-month, to MOP14.94 billion (US$1.85 billion), according to a Sunday announcement from the local regulator, the...
Read More
Sands China to revitalise firecracker factory, old streets

Sands China to revitalise firecracker factory, old streets

Sep 29, 2023  

Bloomberry aims to raise up to US$99mln via share sale

Bloomberry aims to raise up to US$99mln via share sale

Sep 29, 2023  

Sign up to our FREE Newsletter

UB8V5.qr.16(Click here for more)

Pick of the Day

”The Philippines has been the primary growth driver, but really the broader Asian gaming industry is something that’s really important to us”

Matt Wilson

Chief executive of casino equipment provider Light & Wonder



Most Popular

  • International Ent to invest at least US$1bln in Manila IRInternational Ent to invest at least US$1bln in Manila IR September 28, 2023
  • Galaxy Ent to build ice rink, bookshop at Macau old shipyardsGalaxy Ent to build ice rink, bookshop at Macau old… September 28, 2023
  • Light & Wonder to expand facilities in the Philippines: CEOLight & Wonder to expand facilities in the Philippines:… September 29, 2023
  • S.Korea Daegu Casino fined US$776k for AML breaches S.Korea Daegu Casino fined US$776k for AML breaches  September 29, 2023
  • Osaka, MGM-Orix sign implementation deal for IROsaka, MGM-Orix sign implementation deal for IR September 28, 2023
Copyright 2014-2023 TEAM Publishing and Consultancy Ltd / All rights reserved
  • Code of Ethics
  • Privacy Policy
  • Useful Links
  • Contact Us