Macau. Financial mkt liberalization positive; 1Q results likely a mixed bag. Industry Update. Deutsche Bank Markets Research. Industry.

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1 Deutsche Bank Markets Research Asia Hong Kong Consumer Hotels / Leisure / Gaming Industry Date 14 April 2014 Industry Update Financial mkt liberalization positive; 1Q results likely a mixed bag 1Q season: Galaxy, MGM & Sands likely strongest growth China's approval to allow mainland institutional and individual investors buy HK-listed stocks is positive to stock valuations. We think many mainland investors are interested in the gaming sector but have had no available vehicles. Longer term, capital a/c liberalization should lift margins as the need for junket agents to handle cross-border transactions diminishes. This should promote l-t growth of high-margin premium mass while limiting l-t growth of low-margin VIP. In late April, 1Q earnings season starts. We expect Galaxy, MGM & Sands to report good results while MPEL, SJM & Wynn may show weak results. Top picks: Sands, Galaxy and MGM China. MPEL, SJM & Wynn may see 1Q EBITDA decline qoq slightly We expect Galaxy to report the best 1Q results with EBITDA up 12% qoq to HK$3.96bn as Galaxy won both VIP and mass market share. For MGM China, we expect a strong result with property EBITDA up 9% qoq to US$262m as it won mass market share after adding 6 premium mass tables. Sands China also expanded mass market share (+1.2ppt qoq to 32.3%). So, we expect Sands China s 1Q EBITDA to rise 6% qoq to US$888m. We think 1Q results of MPEL, SJM and Wynn will be less exciting as these operators lost market share (specially in mass). Key investor questions for conference calls We think the key interest of investors will be to get more color on several regulatory issues. These include i) money transfer via China s Union Pay debt cards, ii) tightening regulations on junkets, and smoking ban on casinos. Key risks are sector rotation and investor risk appetite on EM growth stocks We revise E EBITDA of operators by -2% to +5% by factoring in trends in 1Q. sector is now trading at 14.2x 14E EV/EBITDA or 17.7x 14E PE, which we view as attractive vs a 21% EPS CAGR over E. We value stocks on 2014 EV/EBITDA. Key risks are China macro, UnionPay regulations and investor risk appetite on emerging market growth stocks. Figure 1: Preview: 1Q14 EBITDA forecast Results date Company GGR US$m GGR qoq DB EBITDA Late-April Wynn 1,366 0% US$370m -1% 12% US$395m 7% below Early-May Sands China 2,959 9% US$888m 6% 42% US$902m Similar Early-May Melco Crown 1,629-4% US$359m -3% 31% US$376m 5% below Early-May MGM China 1,271 2% US$262m 9% 34% US$220m 16% above 12-May SJM 2,938-4% HK$2.26bn -4% 6% HK$2.29bn Similar Mid-May Galaxy 2,614 9% HK$3.96bn 12% 43% HK$4.03bn Similar qoq yoy Consensus EBITDA DB vs. consensus Karen Tang Research Analyst (+852) karen.tang@db.com Top picks Galaxy (0027.HK),HKD70.65 Sands China (1928.HK),HKD62.90 MGM China (2282.HK),HKD29.95 Source: Deutsche Bank Companies Featured Buy Buy Buy Galaxy (0027.HK),HKD70.65 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) Melco Crown (MPEL.OQ),USD35.66 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) MGM China (2282.HK),HKD29.95 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) Sands China (1928.HK),HKD62.90 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) SJM (0880.HK),HKD23.50 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) Wynn (1128.HK),HKD34.15 Buy 2013A 2014E 2015E P/E (x) EV/EBITDA (x) Price/book (x) Source: Deutsche Bank Source: Deutsche Bank, Bloomberg Finance LLP, EBITDA values for MGM China and Wynn shows Property EBITDA (before royalties & corporate expenses) Deutsche Bank AG/Hong Kong Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 054/04/2013.

2 1Q Preview Galaxy, MGM and Sands likely to report best results gaming revenue growth remained strong at 20% yoy in 1Q14. But on a sequential basis, gaming revenue edged up only 2% qoq (because 4Q is a seasonally strong quarter with holiday seasons in both October and December). As industry growth was at single digit on qoq basis, 1Q EBITDA growth largely depends on market share movements. We expect Galaxy to report the best 1Q results (EBITDA 12% qoq) as it won market share in both VIP and mass markets during 1Q. We also expect strong results for MGM China (property EBITDA 9% qoq) as it won mass market share. We expect the worst results from MPEL and SJM (EBITDA down 3-4% qoq). Figure 2: 1Q14 forecast summary Galaxy Melco Crown MGM China Sands China SJM Wynn Industry Currency HK$m US$m US$m US$m HK$m US$m US$m Results date Mid-May Early-May Early-May Early-May 12-May Late-April 1Q14E forecasts Property EBITDA qoq -2% 9% 6% -1% yoy 31% 34% 42% 12% Headline EBITDA 3, , ,615 qoq 12% -3% 3% 6% -4% 0% 3% yoy 43% 31% 34% 42% 6% 12% 31% Luck-adj EBITDA 3, , ,633 qoq 7% -1% 3% -1% -3% 3% 1% yoy 53% 26% 29% 40% 17% 25% 34% Operational stats (qoq change) VIP rolling 4% -4% -13% -7% -4% 5% -3% VIP win % (bps) VIP revenue 10% -6% -5% 8% -7% -1% 0% Mass table revenue 6% -1% 24% 10% 0% 1% 6% Slot revenue 12% 2% 9% 8% 6% -1% 4% Gross gaming revenue 9% -4% 2% 9% -4% 0% 2% Gross non-gaming revenue 2% 2% 1% -16% -1% 1% -8% EBITDA margin (HK GAAP) (bps) Total market share 1Q % 13.4% 9.3% 21.0% 26.3% 11.3% 100% 4Q % 13.6% 10.0% 21.7% 24.5% 11.0% 100% 1Q14E 20.5% 12.5% 10.0% 23.2% 23.0% 10.7% 100% qoq 1.4ppt -1.1ppt 0.0ppt 1.5ppt -1.5ppt -0.3ppt VIP hold 1Q13 3.3% 2.8% 2.8% 3.0% 3.1% 3.1% 3.0% 4Q13 3.1% 3.0% 2.8% 2.7% 2.8% 2.9% 2.9% 1Q14E 3.3% 2.9% 3.1% 3.1% 2.7% 2.8% 3.0% EBITDA margin (HK GAAP) 1Q % 18.2% 17.7% 25.1% 9.7% 21.8% 17.9% 4Q % 20.7% 18.6% 26.8% 9.9% 21.6% 19.1% 1Q14E 18.6% 21.0% 18.8% 26.9% 9.9% 21.7% 19.5% EBITDA margin (local GAAP) 1Q % 23.9% 24.4% 31.2% 9.7% 28.7% na 4Q % 26.5% 25.9% 33.1% 9.9% 28.6% na 1Q14E 19.5% 27.0% 26.0% 32.2% 9.9% 28.4% na Source: Company data, Deutsche Bank estimates Page 2 Deutsche Bank AG/Hong Kong

3 On the results conference calls, investors will be keen in getting more color on regulatory issues relating to money transferring via China s Union Pay debt/credit cards, regulations on junkets, labour shortage in etc. Further, we think i) updates on mass market strategies of each operator ii) updates on the Cotai projects will also likely be key areas of interest. Galaxy: Galaxy gained both VIP and mass market share We expect Galaxy to report 1Q EBITDA of HK$3.96bn, 12% qoq (43% yoy) in mid-may. We expect Galaxy s 1Q EBITDA to grow 13% qoq to HK$2.85bn on the back of i) VIP rolling 8% qoq (vs. market -3% qoq) likely after opening a new junket room with about 14 tables in Jan and ii) mass rev/table 15% qoq to US$14.5k/day (vs. market 7% qoq) likely after relaunching Galaxy Privilege Loyalty Club in Jan. We estimate Galaxy s EBITDA margin would expand by 100bps qoq to 22.3%. Our margin assumption is conservative given i) strong mass performance in 1Q and ii) unlucky VIP hold in direct VIP segment in 4Q. At StarWorld, we expect positive VIP hold impact (1Q 3.1% vs. 4Q 2.7%) would offset gaming volume declines (mass revenue -5% qoq, VIP rolling -1%). Hence, we expect StarWorld 1Q EBITDA 11% qoq to HK$1.15bn. Adjusted for VIP hold, we expect group luck-adj EBITDA to be HK$3.93bn, 7% qoq (53% yoy). Melco Crown: COD lost mass market share in 1Q, first time since 3Q12 We expect Melco Crown to report 1Q EBITDA of US$359m, -3% qoq (31% yoy) in early May. We expect City of Dreams (COD) 1Q EBITDA to decline 2% qoq to US$342m on i) mass rev/ table -2% qoq at US$20.1k/day (vs. market 7% qoq), ii) VIP rolling -4% qoq (vs. market -3% qoq) and iii) slightly lower VIP hold (1Q 2.9% vs. 4Q 3.0%). In 1Q, COD lost 0.6ppt mass market share qoq to 11.9% on our estimate. This is its first market share loss since 3Q12 and we think this is because of competition on premium mass gaming from Wynn and MGM during 1Q. For Altira, we expect EBITDA -12% qoq to US$32m because of i) mass revenue -19% qoq and ii) VIP rolling -5% qoq. Adjusted for the VIP hold impact, we expect luck-adj group EBITDA to be US$352m, -1% qoq (26% yoy). Further, we estimate 1Q headline EPS -2% qoq (304% yoy) to US$0.39. Year-on-year EPS growth is much higher than EBITDA growth (31% yoy) as 1Q13 had several one-off costs, including HK$51m loss on debt extinguishment, US$17m development costs on Melco Crown Philippines reorganization. MGM China: Gained mass market share but at the cost of VIP We expect MGM China to report 1Q property EBITDA of US$262m, 9% qoq (34% yoy) in early May. We estimate MGM China mass rev/ table jumped 23% qoq (vs. market 7% qoq) because of adding 6 new mass tables (likely premium mass) and solid table yield management. Given the strong jump in mass revenues, we estimate 1Q property EBITDA margin (US GAAP) would expand by 180bps qoq to 27.7%. The strong mass growth came at the expense of VIP as VIP rolling declined 13% qoq (vs. market -3% qoq) likely due to removing a small junket (to shift 6 tables to mass). That said, 1Q VIP hold was higher at 3.1% vs. 4Q 2.8%. After branding fees, we expect headline EBITDA to be US$246m, 3% qoq (34% yoy). EBITDA growth after branding fees is lower qoq as 1Q branding fee is US$17m, on our estimate, vs. 4Q nil (due to annual cap been reached in 3Q). Deutsche Bank AG/Hong Kong Page 3

4 Adjusted for the better VIP hold and branding fee, we expect luck-adj property EBITDA to be US$260m, 3% qoq (29% yoy). Sands China: Strong mass market share gains; retail seasonally weak in 1Q We expect Sands China to report 1Q property EBITDA of US$888m, 6% qoq (42% yoy) in early May. Sands China s mass revenue rose 10% qoq (vs. market 6% qoq) because of i) 31 tables added at Venetian in 4Q ramping up ii) Plaza reviving its premium mass operations (its mass revenue 31% qoq after a slow 4Q) iii) SCC continuing to yield up its mass floor. Further, we estimate Sands China was lucky in 1Q with group VIP hold at 3.1% vs. 4Q 2.7%. These strong mass operations and lucky VIP hold helped Sands China s GGR market share to jump 1.5ppt qoq to 23.2% in 1Q. This market share infact surpassed SJM (23.0%) for the first time, thus ranking Sands China as the new #1 on GGR market share in. That said, the above positives should be partially offset by i) 7% qoq decline in group VIP rolling ii) 46% qoq decline in retail rentals due to seasonality (Sands sets turnover rental at retail malls based on a annual threshold. Therefore, most retail tenants do not pay turnover rents in 1Q vs. almost all paying turnover rents in 4Q). Adjusted for the VIP hold impact, we estimate group luck-adj EBITDA to be US$876m, -1% qoq (40% yoy). We estimate 1Q headline EPS to rise 8% qoq (58% yoy) to US$0.09. On a property basis, we expect Four Seasons Plaza s 1Q EBITDA to jump 22% qoq to US$94m on i) mass revenue 31% qoq, ii) VIP rolling 5% qoq and iii) VIP hold reverting to normal (1Q 3.2% vs. 4Q 1.8%). For Sands Cotai Central, we estimate EBITDA to rise 12% qoq to US$266m on i) mass rev/table 8% qoq and ii) better VIP hold (1Q 2.8% vs. 4Q 2.5%), offsetting iii) VIP rolling -13% qoq. For flagship casino Venetian, we expect EBITDA was flat qoq (1% qoq) at US$439m as i) mass rev/table 11% qoq and ii) lucky VIP hold (1Q 3.6% vs. 4Q 3.3%, offset iii) VIP rolling -9% qoq and iv) retail rental seasonality. SJM: Market share loss continues; lost #1 position for the first time in 1Q We expect SJM to report 1Q EBITDA of HK$2.26bn, -4% qoq (6% yoy) on 12 th May. We expect flagship Grand Lisboa s EBITDA -1% qoq to HK$1.28bn as it lost 0.5ppt mass market share qoq to 5.6% in 1Q, despite opening a new premium mass lounge with 12 tables ( Tycoon Club ) in Jan. We think this was due to stiff competition in Peninsula on premium mass gaming from MGM and Wynn. This market share loss means that Grand Lisboa mass rev/table declined 5% qoq to US$9.7k/day, on our estimate. On a group basis, SJM lost 1.5ppt GGR market share qoq to 23.0%, losing its #1 position on market share for the first time. By segment, we estimate SJM s 1Q i) VIP revenue declined 7% qoq (rolling -4% qoq and VIP hold -10bps qoq) ii) Mass revenue was flat qoq. Given revenue mix change (higher VIP decline), we estimate group EBITDA margin (HK GAAP) stable qoq at 9.9%. Adjusted for VIP hold movement, we expect group luck-adj EBITDA to be HK$2.33bn, -3% qoq (17% yoy). Wynn : VIP volume growth offset bad luck and mass market share loss We expect Wynn to report 1Q property EBITDA of US$370m, -1% qoq (12% yoy) in late April. We estimate Wynn s VIP rolling rose 5% qoq (vs. market -3% qoq) partly from opening a new junket room in Jan. But this is partly offset by slightly lower VIP hold (1Q 2.8% vs. 4Q 2.9%). Given the lower VIP hold, we estimate Wynn s property EBITDA margin (US GAAP) would Page 4 Deutsche Bank AG/Hong Kong

5 decline 50bps qoq to 32.9%. Further, Wynn lost 0.3ppt mass market share qoq to 7.1% in 1Q, which means that its mass rev/table would rise only 2% qoq to US$14.9k/day (vs. market 7% qoq) in 1Q. After royalty fees, we estimate headline EBITDA to be US$320m, flat qoq (0% qoq, 12% yoy). Adjusted for the lower VIP hold, we estimate luck-adj EBITDA 3% qoq (25% yoy) to US$337m. We estimate 1Q headline EPS -2% qoq (9% yoy) to HK$0.40. Key investor focus: Regulatory concerns and mass strategies A summary of key investor focus points during 1Q conf calls is as follows. Figure 3: Key investor focus points on 1Q conf calls Industry Regulatory concerns relating to money transferring via union pay, junkets, labour shortage, smoking ban etc outlook (VIP growth, mass gaming growth) Labour cost increases Hengqin Island developments Galaxy Updates on many of its expansion plans o Grand Waldo (re-opening date, renovation plan, market positioning) o Galaxy Phase 2 (current construction status) o Galaxy Phase 3&4 (construction start date, opening date, additional amenities) o Hengqin Island (construction start date, opening date) Galaxy strategy (won both mass and VIP market share in 1Q) Melco Crown Philippines update (official opening date, corporate tax issue) Studio City update (construction status, possible opening date) Strategy at City of Dreams (lost both mass and VIP market share in 1Q) City of Dreams Phase 3 update (project status, capex, non-gaming amenities) MGM China Cotai update (construction status, non-gaming features) How did they achieve the impressive mass markets share gain in 1Q14 Update on planned hotel tower at MGM (approval status, capex) VIP strategy (as it lost VIP market share in 1Q) Sands China Update on Sands Cotai Central s new premium mass area set to open in mid 2014 Parisian update (opening date, new table quota approval) Strategy at Four Seasons Plaza (how it re-gained both mass and VIP market share in 1Q) SJM Update on Grand Lisboa s capacity optimization (new premium mass capacity) Cotai update (construction start, leasing adjoining Theme Park land, non-gaming features, capex) Jai Alai renovation update (completion timeline, amenities) Wynn Cotai Update (construction status, non-gaming features, Phase 2 details) Renovation of the west side of the casino (approval status, target completion, additional gaming space) Any upcoming capacity changes Source: Deutsche Bank Deutsche Bank AG/Hong Kong Page 5

6 Who improved mass table yield most in 1Q? Ans: MGM industry mass revenue rose 6% qoq (40% yoy) in 1Q. Cotai led 1Q mass growth with mass revenue 7% qoq and Peninsula 3% qoq (vs. 4Q more balanced at Cotai 14% qoq and Peninsula 12% qoq). City of Dreams (COD) continued to maintain its lead on mass table yield (mass rev/table) among s Big 7 casinos at US$20.1k/day, 55% above avg. That said, we estimate its mass table yield slightly declined 2% qoq, likely as many competitors are now starting to copy its successful premium mass strategies. In 1Q, MGM had the highest yield improvement among the Big 7 (23% qoq to US$17.6k/day in 1Q, on our estimate). Thus, we expect MGM would regain the #2 position on mass table yield in 1Q. We think this solid improvement is achieved by i) increasing premium mass capacity (converted about 6 tables from VIP to premium mass in 1Q) ii) management s successful table yield management which relies on sophisticated customer profitability analytics. Figure 4: Mass table yield (mass rev/ table) Big 7 casinos US$000 Maintaining lead -2% qoq Regained # position % qoq Yielding up mass floor +8% qoq Q13 4Q13 1Q14 1Q14 average Re-launched loyaltyclub Added 31 new Stiff +2% qoq +15% qoq tables in 4Q competition from MGM and +11% qoq Wynn -5% qoq City of Dreams (MPEL) MGM Grand Sands Cotai Central Wynn Galaxy Venetian Grand Lisboa (SJM) Source: Deutsche Bank estimates, Company data At #3 position, we estimate Sands Cotai Central s (SCC) mass table yield would rise 8% qoq to US$15.0k/day as it yields up its mass floor. We estimate Galaxy s yield improved by 15% qoq to US$14.5k/day as it re-launched the Galaxy Privilege Loyalty Club in Jan (thus increasing focus on premium mass). Venetian s yield also rose 11% qoq to US$13.5k/day in 1Q, on our estimate, likely due to ramp up of the 31 mass tables it added in 4Q. We estimate Grand Lisboa mass table yield declined 5% qoq to US$9.7k/day, despite adding premium mass capacity ( Tycoon Club ) in Jan. This is likely due to stiff competition from its rival Peninsula casinos, MGM and Wynn. Who gained most mass market share in 1Q14? Ans: MGM In Cotai, Galaxy gained the most mass market share in 1Q (+0.7ppt qoq to 10.3%) likely due to re-launching the Galaxy Privilege Loyalty Club in Jan. Venetian further strengthened its lead on mass market share among the Big 7 casinos with 15.1% market share (+0.5ppt qoq). This should be backed by ramp up of the 31 mass tables it added in 4Q. On the flip side, City of Dreams (COD) lost market share in 1Q (-0.6ppt qoq to 11.9%) despite adding mass tables in Feb (by moving VIP tables from Altira). This is its first market share decline since 3Q12. Page 6 Deutsche Bank AG/Hong Kong

7 In Peninsula, MGM was the only market share winner in 1Q (+1.1ppt qoq to 7.3%); highest mass market share gain among Big 7. We think this is due to i) mgmt s increased focus on premium mass (e.g. adding 6 premium mass tables by removing an underperforming junket) ii) MGM managements strength in customer data analytics and marketing. SJM s Grand Lisboa market share declined 0.5ppt qoq to 5.6% despite launching the Tycoon Club premium mass area in Jan. This should be due to stiff competition from MGM and Wynn. Figure 5: Mass market share Big 7 casinos 16% 14% 12% 10% 8% 6% 31 tables added in 4Q ramping up +0.5ppt 15.1% 14.6% 13.7% Cotai First mkt shr loss since 3Q12. Competitors Keeps learning fast improving -0.6ppt qoq +0.3ppt qoq 12.1% 12.5% 11.9% Relaunched Galaxy Privilege Loyalty Club in Jan +0.7ppt qoq 10.1% 9.8% 10.1% 10.3% 9.6% 9.7% Lost mkt shr to MGM -0.4ppt qoq 3Q 4Q 1Q Peninsula Added 6 Lost despite premium Tycoon Club mass tables & launch in Jan. Stiff competition strength in data analytics and marketing +1.1ppt qoq from Wynn & MGM. -0.5ppt qoq 6.9% 7.5% 7.1% 7.3% 6.8% 6.2% 5.8% 6.1% 5.6% 4% 2% 0% Venetian City of Dreams (MPEL) Sands Cotai Central Galaxy Wynn MGM Grand Grand Lisboa (SJM) Source: Channel checks Who gained most VIP market share in 1Q? Galaxy VIP revenue remained flat (0% qoq) in 1Q. We expect Galaxy to be the key market share winner among the Big 7 casinos. Its VIP revenue market share was +0.9ppt qoq to 13.9% in 1Q, on our estimate, likely due to opening a new VIP room with 14 tables in Jan. We estimate that Wynn also gained 1.0ppt VIP rolling market share qoq in 1Q due to opening a new VIP room in Jan. That said, Wynn VIP revenue market share was flat (- 0.1ppt qoq to 12.3%) given its VIP hold was 15bps lower qoq (1Q 2.77% vs. 4Q 2.92%). On the contrary, we estimate both Venetian (-0.4ppt ot 5.6%) and Sands Cotai Central (-0.7ppt to 5.6%) lost VIP rolling market share in 1Q. We think this is because of mgmt s higher focus on mass operations (e.g. mgmt cut VIP tables from 517 in 1Q13 to 440 by 4Q13 and have added those to mass operations). That said, both properties VIP revenue market share was broadly stable given favorable VIP hold. Deutsche Bank AG/Hong Kong Page 7

8 Figure 6: VIP market share Big 7 casinos 16% 14% 12% 10% 8% 6% Lost VIP rolling mkt shr given mgmt is focusing more on mass. VIP revenue mkt shr stable given favorable VIP hold -0.2ppt qoq -0.1ppt qoq 6.9% 6.7% 5.9% 5.8% 5.5% 5.4% Cotai New VIP room opened in Jan Unlucky hold +0.9ppt qoq (rolling mkt 13.9% shr stable) 13.0% -0.6ppt qoq 11.6% 9.5% 9.5% 8.9% Unlucky hold (rolling mkt shr +0.9ppt) -0.1ppt qoq 12.8% 12.4% 12.3% 3Q 4Q 1Q Peninsula Removed an underperforming junket -0.6ppt qoq +0.3ppt qoq 11.6% 11.7% 10.9% 11.0% 10.8% 11.4% 4% 2% 0% Venetian Sands Cotai Central City of Dreams (MPEL) Galaxy Wynn MGM Grand Grand Lisboa (SJM) Source: Deutsche Bank estimates, Company data Page 8 Deutsche Bank AG/Hong Kong

9 Figure 7: Quarterly comparison 4Q13 1Q14E US$m Galaxy Melco MGM Sands SJM Wynn Industry Galaxy Melco MGM Sands SJM Wynn Industry Crown China China Crown China China Market share 19.1% 13.6% 10.0% 21.7% 24.5% 11.0% 100% 20.5% 12.8% 10.0% 23.2% 23.0% 10.7% 100% qoq 0.4ppt -0.2ppt 0.2ppt -1.0ppt 0.1ppt 0.0ppt 1.4ppt -0.8ppt 0.0ppt 1.5ppt -1.5ppt -0.3ppt Volume measures VIP rolling 55,242 36,200 33,263 49,542 71,680 34, ,327 57,352 34,723 29,006 45,873 68,693 36, ,698 Mass drop 1,326 1, ,305 4, ,205 1,433 1, ,798 4, ,953 Slot handle 1,095 2,074 1,574 4, ,400 11,009 1,238 2,172 1,498 4, ,386 11,264 Direct VIP (% of VIP roll) 9% 14% 8% 17% 0% 9% 9% 9% 14% 7% 17% 0% 10% 9% qoq VIP rolling 16% 8% 18% 9% 14% 14% 13% 4% -4% -13% -7% -4% 5% -3% Mass drop 4% 8% 7% 16% 9% 10% 11% 8% -2% 23% 9% 0% 1% 5% Slot handle -7% 1% 21% 14% -2% 17% 9% 13% 5% -5% 1% 5% -1% 2% Capacity No of tables qoq 2% 1% 0% 1% 0% 1% 1% 0% 16% 0% 0% 0% 2% 2% No of slots qoq 0% -11% -1% -2% -15% -1% -6% 0% 0% 0% 0% 1% 0% 0% No of hotel rooms qoq 0% 0% 0% 0% 0% 4% 0% 0% 0% 0% 0% 0% 3% 0% Table yield Mass rev/table (US$k/day) 13,037 19,617 14,267 12,138 9,250 14,552 12,160 14,176 19,126 17,559 13,489 9,418 14,898 12,983 yoy 31% 45% 24% 23% 16% 21% 25% 30% 30% 46% 32% 9% 13% 25% qoq 8% 12% 3% 11% 8% 13% 10% 9% -3% 23% 11% 2% 2% 7% Revenue VIP gross revenue 1,721 1, ,327 2,001 1,004 8,111 1,897 1, ,436 1, ,115 Mass gaming revenue ,217 1, , ,335 1, ,169 Slot revenue Gross gaming revenue 2,392 1,701 1,251 2,718 3,068 1,368 12,515 2,614 1,629 1,271 2,959 2,938 1,362 12,775 Gross non-gaming revenue Net revenue (US GAAP) 1,792 1, ,529 1,734 1,120 9,495 1,944 1, ,757 1,660 1,126 9,764 qoq VIP gross revenue 18% 9% 19% 2% 15% 9% 12% 10% -6% -5% 8% -7% -1% 0% Mass gaming revenue 10% 16% 2% 15% 9% 22% 13% 6% -1% 24% 10% 0% 1% 6% Slot revenue -5% 4% 6% 5% -2% 27% 6% 12% 2% 9% 8% 5% -1% 4% Gross gaming revenue 15% 11% 15% 7% 13% 12% 12% 9% -4% 2% 9% -4% 0% 2% Gross non-gaming rev -1% 1% 10% 22% 0% 11% 14% 2% 2% 1% -17% -1% 1% -9% Earnings Property EBITDA , ,711 Group Headline EBITDA , ,615 Group Luck-adj EBITDA , ,633 DB EPS na na Property EBITDA qoq 10% 16% 19% 7% 17% 14% 12% 9% -2% 9% 6% -4% -1% 4% Group EBITDA qoq 10% 17% 25% 7% 16% 13% 12% 12% -3% 3% 6% -4% 0% 3% Luck-adj Group EBITDA qoq 14% 13% 15% 13% 16% 16% 14% 7% -1% 3% -1% -3% 3% 1% DB EPS qoq 28% 9% 9% 12% -6% 6% 1% -2% EBITDA margin EBITDA margin (HK GAAP) 19.1% 21.7% 19.1% 30.8% 9.9% 23.4% 19.1% 19.5% 22.0% 19.3% 30.0% 9.9% 23.5% 19.5% qoq change -1.0ppt 1.2ppt 1.5ppt -0.2ppt 0.2ppt 0.1ppt -0.1ppt 0.4ppt 0.3ppt 0.2ppt -0.8ppt 0.0ppt 0.1ppt 0.4ppt Galaxy City of Dreams MGM Venetian Grand Grand Lisboa Wynn average Galaxy City of Dreams MGM Venetian Grand Grand Lisboa Wynn average Flagship casino 1 VIP rev/table (US$k/day) Mass rev/table (US$k/day) Slot rev/machine (US$/day) Mass rev/table yoy 29% 44% 24% 6% 12% 21% 25% 34% 29% 46% 14% -5% 13% 25% Mass rev/table qoq 4% 12% 3% 12% 16% 13% 10% 15% -2% 23% 11% -5% 2% 7% Gross gaming rev 1,477 1,311 1,251 1,195 1,172 1,373 1,604 1,264 1,271 1,243 1,192 1,366 Gross non-gaming rev EBITDA EBITDA margin (HK GAAP) 21% 25% 19% 31% 14% 25% 22% 26% 20% 31% 14% 25% Star World Sands Cotai Central average Star World Sands Cotai Central average Flagship casino 2 Altira Altira VIP rev/table (US$k/day) Mass rev/table (US$k/day) Slot rev/machine (US$/day) 380 na na Mass rev/table yoy 30% 41% 111% 25% 20% 17% 90% 25% Mass rev/table qoq 18% 23% 9% 10% -3% -17% 8% 7% Gross gaming rev Gross non-gaming rev EBITDA EBITDA margin (HK GAAP) 16% 10% 23% 17% 9% 25% Source: Company data, Deutsche Bank estimates Deutsche Bank AG/Hong Kong Page 9

10 Earnings forecast changes Factoring in the market share trends in 1Q14, we have slightly revised EBITDA by -2% to +5%. Our EBITDA revisions are highest for MGM China, given its surprisingly strong mass market share expansion in 1Q4Q. Our EBITDA revisions are mostly negative for MPEL and Wynn given those operators mass market share in 1Q was below our previous expectations. Given the small changes in earnings, we have not changed target prices or ratings for any of the stocks. Figure 8: EBITDA forecast changes Company Rec List. curr. TP Rep curr. New EBITDA Old EBITDA EBITDA revision 2014E 2015E 2016E 2014E 2015E 2016E 2014E 2015E 2016E Galaxy Buy HKD 90.0 HKD 16,939 21,938 26,418 16,716 21,961 26,882 1% 0% -2% Melco Crown Buy USD 55.0 USD 1,645 2,234 2,846 1,684 2,259 2,811-2% -1% 1% MGM China Buy HKD 38.0 HKD 8,464 9,565 14,185 8,281 9,103 13,881 2% 5% 2% Sands China Buy HKD 75.0 USD 3,883 4,609 5,220 3,861 4,575 5,204 1% 1% 0% SJM Buy HKD 30.0 HKD 10,114 11,153 11,125 10,038 10,823 10,941 1% 3% 2% Wynn Buy HKD 40.0 HKD 10,886 12,176 17,571 11,121 12,142 17,520-2% 0% 0% Source: Deutsche Bank Valuation and risks Figure 9: gaming operator valuation comp 09/04/2014 Ticker Rec Price Mkt EV/EBITDA PE EBITDA EPS PEG Div FCF local cap (x) (x) growth Cagr (x) Yield yield cur US$m 2014E 2015E 2014E 2015E 2014E 2015E 2016E 14-17E 14-17E 2014E 2014E Galaxy 0027.HK Buy , % 30% 20% 21% % 5.7% Melco Crown MPEL.OQ Buy , % 36% 27% 26% % 6.7% MGM China 2282.HK Buy , % 13% 48% 26% % 7.7% Sands China 1928.HK Buy , % 19% 13% 16% % 6.8% SJM 0880.HK Buy , % 10% 0% 18% % 8.0% Wynn 1128.HK Buy , % 12% 44% 25% % 5.5% average % 21% 26% 22% % 6.7% - Cotai stocks (Galaxy, MPEL, Sands) % 28% 20% 21% % 6.4% - Peninsula pstocks (MGM, SJM, Wynn) % 12% 31% 23% % 7.1% Source: Deutsche Bank Note: Free cash flow yield is calculated using Free cash before expansion capex Page 10 Deutsche Bank AG/Hong Kong

11 Figure 10: stocks share price performance 09/04/2014 Ticker Mkt Cap Price YTD 2w 1m 1Q13 2Q13 3Q13 4Q13 1Q14 % from % from T/O Beta US$m local cur LTM hi L3M low (US$m) Galaxy 0027.HK 37, % 1% -8% 7% 17% 43% 28% -3% -17% 7% Melco Crown MPEL.OQ 20, % 2% -15% 39% -4% 42% 23% -1% -16% 6% MGM China 2282.HK 14, % 1% -9% 18% 25% 24% 29% -17% -19% 6% Sands China 1928.HK 63, % 3% -6% 19% -9% 31% 32% -9% -8% 11% SJM 0880.HK 16, % 1% -10% 8% -3% 16% 19% -16% -17% 7% Wynn 1128.HK 22, % 3% -11% -2% 2% 26% 33% -8% -13% 5% average -6% 2% -10% 15% 5% 30% 27% -9% -15% 7% MSCI HK 13, % 5% 2% 3% -6% 8% 3% -4% -1% 9% MSCI China % 5% 2% -4% -9% 11% 4% -6% -7% 9% MSCI China Consumer Discretionary % 7% 4% -10% -7% 20% -1% -6% -9% 11% MSCI China Consumer Staples 1, % 7% 3% -1% 3% 6% 2% -7% -5% 9% Source: Deutsche Bank Company valuation and risks Galaxy valuation and risks We value Galaxy on an SOTP basis. We value: i) current gaming operations at 14x 2014E EV/EBITDA, ii) Phase 2 of Galaxy at HK$20/share, iii) the 10m sf GFA undeveloped Cotai land bank at HK$3,000psf land value and iv) the construction materials business at book value. Our target EV/EBITDA multiple for Galaxy is broadly in line with avg trading multiple of its peers. Company-specific downside risks include: i) mass market share loss at Galaxy after Sands Cotai Central ramps up, and ii) construction delays or capex increases for Galaxy Phase 2. Melco Crown valuation and risks We value MPEL's i) current operations at 13x 2014E EV/EBITDA, ii) Studio City (60% stake) at US$7.5/shr (11x 2016 EBITDA of US$870m less capex) iiii) City of Dreams Philippines (69% stake) at US$1.8/shr (10x 2015 EBITDA of US$170m less capex). Our target EV/EBITDA multiple for Melco Crown is at a discount to the average trading multiple of its peers. We think a discount is fair given MPEL's historical volatility of quarterly earnings. Company-specific downside risks are: i) City of Dreams losing mass market share due to competitors increasing premium mass capacity, ii) Philippines project failing to mitigate impact from new 30% profit tax, and iii) cost overruns or construction delays at Cotai and Philippines projects. MGM China valuation and risks We value MGM China at 11x 2014E EV/EBITDA plus HK$3.6/share for Cotai (40% of HK$9.0/ share estimated project valuation). Our target multiple is below the average trading multiple of peers, which we think is justified given the company's lack of near-term growth potential. Company-specific downside risks include: i) further market share loss after Sands Cotai Central ramps up, ii) construction delays or budget overruns of Cotai budget. Sands China valuation and risks We value i) Current operations at 18x 2014E EV/EBITDA, ii) Parisian project at HK$7.8/shr (14x 2016 EBITDA of US$770m less capex), and iii) Four Seasons Apart-Hotel units at HK$1.0/shr (assuming HK$10kpsf sale price). Our target Deutsche Bank AG/Hong Kong Page 11

12 multiple for Sands China is at a premium to the average trading multiple of peers. We think this is justified given Sands China's higher exposure to mass and non-gaming. Company-specific downside risks include: i) higher-than-expected market share cannibalization of other three properties as Sands Cotai Central ramps up, and ii) cost overruns or construction delays of Parisian project. SJM valuation and risks We value i) Current operations at 13x 2014 EV/EBITDA, ii) SJM Cotai at HK$1.1/shr (7x 2017 EBITDA of HK$6.2bn less capex), plus iii) 2014E net cash of HK$5.0/share. Our target EV/EBITDA multiple for SJM is at a discount to average trading multiple of peers. We think a discount is fair as SJM's EBITDA margins are below industry average. Company-specific downside risks include: i) corporate governance risk on leasing arrangement for Angela's theme park site, ii) Grand Lisboa margin decline, and iii) changes of shareholding at parent company STDM. Wynn valuation and risks We use a SOTP-based methodology. We value Wynn at 14x 2014E EV/EBITDA plus HK$1.6/shr net cash and HK$9.6/shr value creation from Wynn Cotai. Our target EV/EBITDA multiple for Wynn is largely in line with the average trading multiple of peers. Company-specific downside risks are: i) Cotai project construction delays and budget increases, ii) market share loss, and iii) dispute at parent company level with the former vice chairman leading to unfavourable outcomes. Page 12 Deutsche Bank AG/Hong Kong

13 Industry revenue trends Figure 11: gaming revenue yoy Figure 12: VIP and Mass gaming revenue yoy MOPbn Gaming revenue (LHS) yoy change (RHS) 140% Mass table revenue yoy VIP revenue yoy % 120% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 80% 60% 40% 20% 0% -20% 100% 80% 60% 40% 20% 0% -20% -40% Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Source: Government data, Deutsche Bank Source: Deutsche Bank Figure 13: Mass table revenue US$bn Mass table revenue(lhs) yoy (RHS) Q14 +6% qoq Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% Figure 14: VIP gaming revenue US$bn VIP revenue (LHS) yoy (RHS) Q14 flat qoq Q08 2Q08 3Q08 4Q08 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 125% 100% 75% 50% 25% 0% -25% Source: Deutsche Bank estimates, Government data Source: Deutsche Bank estimates, Government data Figure 15: gaming revenue (US$bn) VIP Mass Slots Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Figure 16: Quarterly gaming revenue growth summary US$m 4Q13 1Q14 1Q14 qoq 1Q14 yoy VIP rolling (inc direct rolling) 280, ,698-3% 17% VIP hold 2.9% 3.0% 0.1ppt -0.1ppt VIP revenue 8,111 8,115 0% 12% Mass table revenue 3,933 4,169 6% 40% Slot revenue % 10% Gross gaming revenue 12,515 12,775 2% 20% Headline EBITDA 2,528 2,615 3% 31% EBITDA Margin (HK GAAP) 19.1% 19.5% 40bps 160bps Source: Government data, Deutsche Bank Source: Deutsche Bank estimates, Government data The author of this report wishes to acknowledge the contributions made by Thilan Sampath, Janani Perera and Rasheed Sheriff employees of Copal Amba, a third-party provider to Deutsche Bank of offshore research support services. Deutsche Bank AG/Hong Kong Page 13

14 Appendix 1 Important Disclosures Additional information available upon request For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at Analyst Certification The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Karen Tang Equity rating key Equity rating dispersion and banking relationships Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ), we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12- month period Sell: Expected total return (including dividends) of -10% or worse over a 12-month period % 39 % 25 % 20 % 7 % 12 % Buy Hold Sell Companies Covered Cos. w/ Banking Relationship Asia-Pacific Universe Page 14 Deutsche Bank AG/Hong Kong

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