Asia Pacific Equity Research01 January 2024J P M O R G A Nwww.jpmorganmarkets.comHead of Asia Gaming/Leisure and China Software/SaaS ResearchDS Kim AC(852) 2800-8597ds.kim@jpmorgan.comBloomberg JPMA DSKIM Mufan Shi(852) 2800-8502mufan.shi@jpmorgan.comSelina Li(852) 2800-8530selina.c.li@jpmorgan.comJ.P. Morgan Securities (Asia Pacific) Limited/ J.P. Morgan Broking (Hong Kong) Limited•2023 closed strongly, with 80%+ recovery in December GGR. December gross gaming revenue (GGR) was up 16% m/m (or +433% y/y) to MOP18.6B, handsomely beating the consensus of MOP17-17.5B and printing an impressive daily run-rate of MOP599m (vs. MOP531m in 3Q) that�s almost comparable to October�s MOP629m. This also marked the first time since re-opening that the recovery rate hit over 80% (81% to be exact) vs 70-75% recovery in recent months, albeit aided by relatively easy comps (recall, the President Xi visited Macau in December 2019). •What does December GGR tell us? The print suggests mass GGR recovered to 110%+ of pre-COVID levels on JPMe (vs. 96% in 3Q, or 100%+ in Oct/Nov), thanks to a gradual return of base mass players (90%+ vs. premium mass at 120%+ on JPMe), as well as easy comps. The pace of VIP recovery remained sluggish, as expected, at around low-20%s on JPMe, similar to recent months/quarters. •Recapping 4Q: a record-high mass in the history of Macau. Headline GGR grew +11% q/q, doubling the historical seasonality of +5% growth, to hit MOP588m/day that represents 75% of pre-COVID levels (vs. 69% recovery in 3Q). Importantly, we believe mass GGR rose+12-13% q/q to print an all-time high of MOP48.6B in 4Q, surpassing pre-COVID levels for the first time since re-opening and hitting 105%+ of 2019 (vs. 95% recovery in 3Q). This is impressive, given well-documented macro headwinds from China. Meanwhile, we believe VIP GGR edged down again by 3-4% q/q (partly due to unfavorable VIP luck) to remain at around 20% of pre-COVID levels. •What now? Macau casinos will start reporting 4Q earnings from late January as we enter the Year of Dragon, and we expect industry EBITDA to grow 10%+ q/q to hit ~85% of pre-COVID levels (vs. 80% recovery in 3Q). Investors will likely scrutinize OPEX and promotions/reinvestments given (modest) margin disappointments from 3Q, but we believe overall trends remained largely stable q/q. If we are right on 4Q EBITDA & cost environment, the Street estimates for FY24E should be able to stabilize around here, in turn alleviating investors� concerns on earnings risk and hopefully driving sector valuations to normalize (currently at 9x EV/EBITDA vs. the 12-13x historical mean, or at 12% eFCF yields; Table 4 and Figure 5). •We remain constructive on Macau stocks into the Year of Dragon, and our pecking order stays at: MGM (OW; top pick) > Sands = Wynn (OWs) > Galaxy (OW) > Melco (N) > SJM(N).See page 6 for analy...
