BRI: Hong Kong | Consumer Gaming – Buying In: Initiate on the Macau Gaming Sector. Top Buy - Sands China

 

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Hong Kong | Consumer Gaming – Buying In: Initiate on the Macau Gaming Sector. Top Buy - Sands China

With China the key driver given 73% of total Macau visitations are from China (42% of Chinese visitors from Guangdong), Jefferies believes the combination of tax cuts (VAT and individual) and lowering of China’s reserve requirement ratio (RRR) is likely to lead to credit loosening and translate to more spending money for both individuals and state-owned enterprises (SOEs). This fiscal policy mixed with the U.S. Federal Reserve’s increasingly dovish stance is expected to place less pressure on RMB. The mass market continues to benefit from strong visitations (4Q18 and 2M19 visitations rose 13.8% and 19.9%, respectively), driven by higher disposable incomes with Jefferies’ auto and energy analysts noting another 240 million Chinese residents could reach the crucial RMB3,500/month personal mobility travelling threshold (double the existing number). Ease of travelling via the opening of the HK-Macau-Zhuhai bridge and HSR is a positive driver. Jefferies initiates coverage of Macau gaming stocks with Buy on Sands China (higher mass and non-gaming exposure) and Wynn Macau (strong brand and reputation), but Hold on Galaxy (increasing VIP competition) and MGM China (MGM Cotai recovery already in price). With monthly gaming revenue (GGR) the key driver but expected to bottom in 2Q19 driven by credit easing and tax cuts. FULL REPORT

Andrew Lee, China Consumer Gaming