As Macau’s gaming sector gets ready to enter a supply boom in mid-2015, UBS says the sector needs 8 percent growth in gross gaming revenue per year for new projects to achieve substantial EBITDA.
“Based on our 2015 GGR (-21%) forecasts, our scenario analysis shows that the sector needs an 8% GGR CAGR in 2016/17/18 for new projects to achieve c15% incremental EBITDA RoIC by 2018E, assuming no growth in existing properties,” analyst Anthony Wong said in a note.
In a base-case scenario, Wong estimates mass and non-gaming segments driving over 70 percent and 20 percent of incremental gross profits, respectively, with VIP contributing less than 10 percent.
“Divergences in implied new projects’ values create medium-term opportunities We believe the market is pricing in some value creation for new projects, as implied EV for new projects is at a meaningful premium to total invested capital. By operator, our analysis shows that implied returns for MGM/SJM Cotai projects are the lowest; and are highest for Galaxy/Sands.”
Wong added that the differences in launch dates means returns for each project should vary. “Still, we believe there are large divergences in implied values (eg, MGM versus Sands) that could narrow over the medium term.”