Goldman Sachs: Macau gaming industry Q3 EBITDA expected to rebound 5% quarter-on-quarter; Sands China (01928) and GALAXY ENT (00027) expected to outperform

Goldman Sachs Group, Inc. published a research report stating that Macau's gaming industry revenue in the third quarter was roughly flat quarter-on-quarter and down 4% year-on-year, but benefiting from a seasonal rebound in non-gaming revenue during the summer, a stabilizing competitive environment, and cost control, industry EBITDA is expected to rebound 5% quarter-on-quarter to US$1.95 billion, with a year-on-year decline of 9%; the EBITDA margin calculated on gross revenue bottomed out and rebounded to 21.8%, compared with 20.9% in the second quarter. The bank noted that third-quarter gaming revenue remained soft, mainly due to diversion of gaming spending during the World Cup; international airfare prices rose 30% to 40% year-on-year and only began to normalize in August to September; and negative sentiment brought by the stock market correction and mainland China's strengthened capital controls and tax regulation of offshore financial investments. Sands China (01928) and GALAXY ENT (00027) benefited from the return of leisure and family travelers, with gaming revenue market share expanding quarter-on-quarter by 1.4 and 1.2 percentage points to 25.3% and 21.8%, respectively; Melco Resorts & Entertainment Ltd. Sponsored ADR (MLCO.US) and SJM HOLDINGS (00880) saw market share decline quarter-on-quarter by 1.5 and 0.8 percentage points to 13.4% and 9.4%, respectively, while WYNN MACAU (01128) and MGM CHINA (02282) saw market share remain broadly stable. The bank expects Sands China's third-quarter EBITDA to rise 28% quarter-on-quarter to US$548 million, the strongest among the six operators it covers; GALAXY ENT EBITDA is expected to rise 8% quarter-on-quarter to HK$3.66 billion; Melco Resorts & Entertainment Ltd. Sponsored ADR, however, is expected to see EBITDA fall 12% quarter-on-quarter to US$267 million due to pressure on operating leverage. On ratings, the bank maintained "Buy" ratings on GALAXY ENT, Sands China, WYNN MACAU, and Melco Resorts & Entertainment Ltd. Sponsored ADR, with target prices of HK$51, HK$19.5, HK$8.1, and US$8, respectively; it rated MGM CHINA "Buy" with a target price of HK$16; and rated SJM HOLDINGS "Neutral" with a target price of HK$1.8. The bank said sector valuations are attractive, with EV/EBITDA falling to about 7 times and an average dividend yield of more than 6%, while a more meaningful re-rating still depends on the timing and magnitude of upward revisions to gaming revenue and earnings forecasts.