Key points of investment
4Q23 Company's adjusted EBITDA margin increased 1.4 pct over the same period in '19. On the revenue side, 4Q23 achieved operating revenue of US$9.1 billion (recovering to 81.6% in the same period in 2019), which exceeded our expectations by about 8.9%: the number of visitors entering Macau in October-December recovered to 86%/89%/96% in the same period in 2019, respectively, maintaining a relatively rapid recovery rate, driving Peninsula Property Midfield/Slot Machine to increase revenue of +30.4%/+28.7% month-on-month respectively. By business, the company's net gaming/non-gaming revenue was US$74/170 million, respectively, recovering to 78.0%/102.1% in the same period in '19, respectively. On the profit side, 4Q23's adjusted property EBITDAR was US$300 million, recovering to 85.4% in 4Q19. Profit recovery continued to be faster than revenue recovery, driving the company's adjusted property EBITDA profit margin to increase 1.4 pct to 32.6% from 31.2% in 4Q19. If 4Q23's high VIP win rate is standardized, the adjusted property EBITDAR will be adjusted to US$290 million, corresponding to a profit margin of 31.8%, which is an increase over the same period. We judge that the main factors are: 1) the revenue share of midfield businesses with high profit margins continues to increase; 2) as the recovery process continues to advance, operating leverage comes into play.
4Q23 achieved revenue of US$91 billion, recovering 73.0% from the same period in '19 (the industry recovered to 75.0%). Among them, VIP/midfielder/slot machines each achieved revenue of 1.6/70/40 million US dollars, respectively, and the midfield performance was particularly impressive. We judged mainly that, benefiting from the increase in the number of inbound visitors, Peninsula Properties' 4Q23 average daily midfield single table win increased by 28.0% month-on-month, returning to 101.3% in the same period in 2019; and Wynn Palace's average daily midfield single table win has recovered to 116.2% in the same period in '19. At the same time, the company pointed out that the momentum of midfield business recovery in January 2024 was still strong. The average daily midfield bet amount increased 32% compared to January 2019, and continued to grow compared to 4Q23.
4Q23 achieved $170 million in non-gaming, a recovery of 102.1% from the same period in '19. Among them, guest rooms/dining/retail recovered to 111.9%/99.5%/90.1% in 4Q19, respectively. The multimedia exhibition space in collaboration with the American entertainment company Illuminarium opened on 4Q23, and the company is planning future capital expenditure projects, such as food halls, new event and entertainment centers, etc. We expect the company's appeal to travelers will further increase in the future.
The average daily operating expenses for 4Q23 were $2.56 million, down about 14% from 4Q19, but increased by about 7% month-on-month. The main reasons were: 1) the room occupancy rate increased by about 1 pct, leading to an increase in related variable costs; 2) the number of 4Q23 vacation days was higher than in 3Q23, which led to higher holiday overtime; and 3) the 4Q23 company held a large number of non-gaming events.
Profit forecast and investment rating: Based on industry trends and the company's latest recovery, we raised our 2023-2025 net income forecast to HK$241.9/269.9/HK$30.58 billion; adjusted property EBITDA forecast for 2023-2025 to HK$74.5/84.0/10.25 billion. The current stock price corresponds to 10.3/9.2/7.5 times EV/adjusted property EBITDA. Our target price is HK$9.2, maintaining a “buy” rating.
Risk warning: China's macroeconomic growth fell short of expectations, Macau's tourism recovery fell short of expectations, the overseas gaming market was diverted, and Macau's gaming supervision policy became stricter.