Parisian – off to a great start
The consensus is that Sands has done a great job with the Parisian and the commonfeedback is the money was well spent. With a budget of only US$3.1bn, the project has 3000rooms, a 400table casino, and competitive non-gaming offers including 400,000sqft ofleasable retail space, a water park, a kid’s zone, a 1,200-seat theater and an EiffelTower. The mass gaming floor was very packed (as crowded as the Venetian) in the firstweek and the VIP area was busy too with the presence of the big three junkets. Although thelaunch was impressive, it is too early to tell if the ramp up will be a quick one. We believe thereal test will be in the slow season (after Oct golden week) and after the initial excitementwears off. With that said, we are confident that the Parisian should be able to meet or exceedour and consensus' forecast for 2017E given the expectations are conservative, in our view.Also see our first take here - Sands China Ltd.: First take on the Parisian 14September 2016.
Minimal cannibalization so far
Meanwhile, traffic to Wynn has come down from the first week which should not be asurprise. Overall, we believe Wynn is doing well VIP-wise (and the VIP market has expandedas well) but their premium mass needs time to ramp. Thus, we believe Wynn has not causedmuch cannibalization to others (including to its own property in Peninsula) and this isconsistent with the observation from other operators. Given that 3Q’s GGR is likely to grow2.9% QoQ and with limited cannibalization, we expect that most operators will post decent3Q results.
VIP recovery? Too early to tell
Based on channel checks, the biggest junket’s VIP volume increased dramatically in 1HSeptember, and as a result, September’s GGR could be better than our expectation. Webelieve the VIP recovery could be driven by new supply, improved liquidity or even justrandom fluctuation. Without a good understanding of the real reason for the VIP surge, wethink it is too early to call for a VIP recovery. In fact all the operators and some smallerjunkets we spoke to were not sure if the recent volume surge is sustainable.
Mass recovery theme continues / new infrastructure helps
Our mass recovery theme continues to play out. We estimate that VIP volume is still downdouble-digits YoY in July and August, implying mass should grow at least high single digit inboth months. In the medium term, we believe that infrastructure improvement should providea further boost. The Pac-On permanent ferry terminal should be ready early next year. It has16berths which should allow Macau to develop new routes. One potential opportunity is toincrease frequency to Shenzhen. Although Shenzhen’s GDP is already similar to Hong Kong’s,it contributes far fewer visitations than Hong Kong. We believe better connection could helpimprove Macau’s penetration of the Shenzhen market. Also, a new highway connectingZhuhai to Hengqin has recently opened which should encourage more traffic to take theunderutilized Lotus bridge straight to Cotai.
The sector is trading at 12.2x 2017E EV/EBITDA, which is just a tad lower than the historicalaverage of 12.5x. We believe the short term headlines should remain positive (potentialsurprise from Sep GGR, Golden week and strong 3Q results) and the yield angle remainsattractive (Sands still offers 5.9% yield after the rally). We stay bullish on the sector.