The Zhitong Finance App learned that Zhishang Securities released a research report saying that judging from a historical review, the gaming industry's valuation and revenue growth rate are basically the same, showing that Davis double hit the market, and companies with stronger profitability can enjoy higher valuation premiums. At present, Macau Gaming's valuation level is still at a historically low level, and the midfield business leading the recovery trend has been gradually verified. It is expected that it will continue to be interpreted along the path of “passenger flow recovery → boosting midfield business with higher profit levels → rise in the valuation center” in the future.
In terms of individual stocks, Zheshang Securities believes that it mainly grasps three investment ideas: 1) the small and American standard that has led the mid-market recovery pace since 23, focusing on MGM China (02282) and Wynn Macau (01128); 2) leading companies with high market share and strong resource endowments, focusing on Galaxy Entertainment (00027) and Sands China Limited (01928); 3) The new climbing slope unleashes operating vitality, focusing on Australian Property Expo Holdings (00880) and Macau International Development (00200).
Revolutionizing the past: What is the current historical point of gaming in Macau?
External: The business environment is gradually stabilizing, and the industry boom is picking up at an accelerated pace. Starting in 2020, the special external environment impacted the gaming and tourism industry in Macau, China. Macau's gross gaming revenue remained low for three consecutive years. By 2023, relevant travel policies were relaxed, and gaming entered a recovery cycle. Referring to the experiences of Las Vegas and Singapore, the pace of gaming recovery is basically the same as that of passenger flow recovery. As of 24Q1, Macau's inbound visitors/gross gaming revenue had recovered to 86%/75% of the same period in '19, respectively, and is expected to continue to recover steadily in the future.
Internal: The bill is introduced and auctioned off, and the industry landscape may be reshaped. The new gaming law was promulgated in June '22, which restricted intermediary business and satellite casinos, etc., to facilitate long-term standardized development of the industry; in November of the same year, the gaming license auction was launched, and the original pattern of the six major gaming companies was maintained, and uncertainty was eliminated. However, at the same time, the redistribution of gambling tables and the opening of some new properties or pointing to a new round of pattern changes, the market share of each company in '23 also differed markedly compared to '19. For example, the leading positions of Galaxy and Gold Salons were challenged, MGM grew strongly, and customer acquisition and operational capabilities became the key to victory or loss.
Continuing with the past: What are the future trends of gaming in Macau?
Kinetic energy switching: VIP business driven by high-net-worth people → midfield business driven by visitors. Since 2012, the VIP business growth rate has continued to outperform the midfield, and the industry's development momentum has gradually changed. By 24Q1, the gross revenue of VIPs/midfielders/gaming machines accounted for 39%/113%/86% of the same period in '19, respectively. The midfield recovery pace was far ahead, leading the current round of recovery.
The policy side and the market side work together to promote diversified transformation in Macau. In comparison to Las Vegas, Macau currently has problems with a relatively single passenger flow structure, short tourist stay time, and high dependence on gaming. Under the corresponding new approval contract, 6 gaming companies promised to invest more than MOP 100 billion in non-gaming projects and expand foreign customer base during the 10-year franchise period. Zheshang Securities believes that Macau's tourism industry will gradually diversify and transform, and the growth of inbound visitors, especially overnight travelers, will be an important indicator. Over the past 24 years, many favorable measures for visiting Macao have been implemented, such as the expansion of free travel cities, improved convenience of customs clearance, and optimization of transportation facilities; in addition, Macau's reception capacity has also improved markedly. The number of hotel rooms has increased 22% over 2019. Coupled with the sequential scheduling of high-quality cultural and sports activities, the collaborative efforts on the policy side of the market are expected to jointly drive the increase in passenger flow.