Macau:July -Strong but not strong enough

July likely the peak; Aug growth likely start moderating

    July GGR grew 29.2% yoy (MOP741m/day). While higher than June’s 26% yoy,it is at the low-end of recent consultant estimates of 29-34% yoy. On one hand,July’s solid GGR should calm investor concerns over junket liquidity situation(Macau stocks fell 5% in July vs MSCI HK +4%, after a large junket sent anSMS in early July highlighting stricter Chinese govt monitoring of theunderground banking channels.) On the other hand, July is most likely thepeak of this recovery cycle as August faces tough comp with GGR growthhaving turned positive August last year. That said, junket agents highlightedstrong demand from new VIP players from Tier 3 Chinese cities. As such, weforecast that VIP and premium mass will lift GGR/day higher into the highseason in Aug-Sept, allowing GGR growth to decelerate more mildly than themarket is expecting. Our top pick remains Wynn Macau.

    Expecting more consensus upgrades after the 2Q results season

    Consensus is still only forecasting 15% yoy GGR growth FY17 vs Jan-Julyactually growth of 19% yoy. This implies: i) 2H17 gth to halve from YTD to only8-10% vs. DBe +18% yoy ii) 2H17 GGR to be only 3% higher than 1H17,despite being seasonally much stronger. DBe 2H17 GGR to grow 8% hoh, andas a result, we find consensus 2H EBITDA to be too conservative, whichimplies largely flat hoh EBITDA for the reported companies.

    Valuation no longer expensive after pull back in July

    After the 5% share price decline in July, Macau stocks are now trading at13.3x DB 12m forward EV/EBITDA. We value Macau stocks on SOTP withtarget multiples on 2017E EV/EBITDA. Following largely in-line 2Q result, weare updating Sands numbers by 1% (Fig 13). Downside risks include a sharpslowdown in GGR momentum and regulatory changes. Upside risks includemilder GGR growth slowdown than the market expects.