Key points of investment

2Q24 achieved a profit of $0.88 billion, recovering 64.3% from the same period in '19. Among them, the VIP/midfielder (including slots) achieved a profit of 0.14/0.74 billion US dollars, recovering to 19.8%/112.0% in 2Q19, and the degree of recovery decreased by 3.4 pct/10.6 pct, respectively. In the same period, under the caliber of the Expo Supervisory Authority, industry VIPs/midfielders (including slots) recovered to 38.5%/111.3% in 2Q19, respectively, and the degree of recovery remained flat or increased by 1.0 pct from month to month, respectively. The company's midfielder/overall expo revenue recovery rate declined steadily, resulting in the company's midfield/overall market share falling 1.5 pct month-on-month, to 13.9%/12.6% in 2Q24, respectively.

Results fell short of expectations, and profit margins fell 2.3 pct to 31.7% month-on-month. On the revenue side, 2Q24 achieved operating income of 0.89 billion US dollars (about 2% lower than market expectations), a year-on-month decline of 11.3%, and recovered to 75.3% in the same period in 2019. Among them, gambling/non-gaming net revenue was 0.73/0.16 billion US dollars, down 11.5%/10.6% from month to month, respectively, and recovered to 71.9%/96.4% in 2Q19. On the profit side, 2Q24's adjusted property EBITDAR was $0.28 billion (about 2% lower than market expectations), down 17.4% month-on-month, and recovered to 81.7% in the same period in 2019. The adjusted EBITDAR profit margin for properties fell 2.3 pct month-on-month to 31.7% in 2Q24, mainly driven by operating leverage. However, at the same time, the company's adjusted property EBITDAR profit margin was still 2.5 pct higher than 2Q19, mainly due to the company's average daily operating expenses falling 19% from 3.2 million US dollars in 2Q19 to 2.5 million US dollars in 2Q24.

The company's market share rebounded to the expected level in July '24. The company's management said that although 2Q24's market share declined, thanks to strong midfield bets and a hotel occupancy rate of up to 99%, the company's market share had recovered to the expected level in July '24. Looking ahead, management said it will reduce its focus on quarterly market share fluctuations, continue to improve product and service levels, and remain cautious in fierce market competition to ensure that investment projects can bring reasonable returns.

Profit forecast and investment rating: We lowered our 2024-2026 net income forecast to HK$30.19/32.4/34.14 billion; adjusted property EBITDAR forecast for 2024-2026 to HK$9.67/10.19/10.74 billion, corresponding to the current stock price 7.3/7.0/6.6 times EV/adjusted property EBITDAR. Our target price is HK$9.5, maintaining a “buy” rating.

Risk warning: China's macroeconomic growth falls short of expectations, Macau's tourism recovery falls short of expectations, overseas gaming markets are being diverted, and Macau's gaming regulations are getting stricter.