Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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Thematic (Sector/Industry)

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for <a href="https://www.smartkarma.com/entities/472" target="_blank" data-smartkarma-citation="entities:472:1">MGM China Holdings Ltd (2282 HK)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/182" target="_blank" data-smartkarma-citation="entities:182:1">Sands China Ltd (1928 HK)</a>, HKD 14 for <a href="https://www.smartkarma.com/entities/473" target="_blank" data-smartkarma-citation="entities:473:1">Wynn Macau Ltd (1128 HK)</a>, USD 17 for <a href="https://www.smartkarma.com/entities/810" target="_blank" data-smartkarma-citation="entities:810:1">Melco Crown Entertainment ADR (MPEL US)</a>, HKD 36 for <a href="https://www.smartkarma.com/entities/806" target="_blank" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group Limited (27 HK)</a>, HKD 6.6 for <a href="https://www.smartkarma.com/entities/805" target="_blank" data-smartkarma-citation="entities:805:1">SJM Holdings Ltd (880 HK)</a>, $133 for <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1">Wynn Resorts Ltd (WYNN US)</a>, $56 for <a href="https://www.smartkarma.com/entities/807" target="_blank" data-smartkarma-citation="entities:807:1">Las Vegas Sands Corp (LVS US)</a>, and $29.50 for <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a>. We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in casinos effective on Jan. 1, 2019, one year later than our existing expectation. Our current forecasts across our narrow moat coverage universe already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates. Our current fair value estimates per share are HKD 17 for MGM China Holdings Ltd (2282 HK), HKD 36 for Sands China Ltd (1928 HK), HKD 14 for Wynn Macau Ltd (1128 HK), USD 17 for Melco Crown Entertainment ADR (MPEL US), HKD 36 for Galaxy Entertainment Group Limited (27 HK), HKD 6.6 for SJM Holdings Ltd (880 HK), $133 for Wynn Resorts Ltd (WYNN US), $56 for Las Vegas Sands Corp (LVS US), and $29.50 for MGM Resorts International (MGM US). We continue to see Wynn trading at an attractive margin of safety.The revised bill creates a level playing field for casino operators. We have confirmed with a Macau legislative assembly member that the revised bill outlines that all VIP smoking gaming areas will be closed and that all casinos will be able to establish smoking lounges on both VIP and mass gaming floors. Therefore, under the proposed bill newer casinos will be able to establish smoking lounges in VIP gaming areas, while the older casinos will lose the smoking premium mass and VIP smoking area. As a result, Cotai casinos as a whole stand to gain market share at the expense of Macau peninsula casinos.Analyst: Chelsea Tam

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

Investing in high growth Asian frontier economies., Asia Frontier Capital

Scott Osheroff

Investing in high growth Asian frontier economies.

Asia Frontier Capital

Asia Frontier Capital Ltd. is a pioneering fund management company based in Hong Kong that specializes in investing in high growth Asian frontier economies by managing the AFC Asia Frontier Fund , AFC Iraq Fund and the AFC Vietnam Fund.

The AFC Asia Frontier Fund invests in public equities of Asian frontier countries that are seeing increasing consumption due to favorable demographic trends, rising incomes and high GDP growth. The fund invests in listed equities of companies that have their principal business activities in Bangladesh, Bhutan, Cambodia, Iraq, Laos, Maldives, Mongolia, Myanmar (Burma), Nepal, Pakistan, Papua New Guinea, Sri Lanka and Vietnam. The AFC Asia Frontier Fund is positioned to take advantage of the continuing economic shifts in these countries and offers high returns combined with significant diversification opportunities. This fund is directed by the founder and CEO of Asia Frontier Capital, Thomas Hugger, who has been investing in frontier markets across Asia and Africa for more than 20 years.

The AFC Iraq Fund was launched on the 26th June 2015 and aims to achieve long-term capital appreciation for investors by capturing value and growth potential in the post conflict high-growth & resource rich Iraq market. The fund emphasises long term investment horizon to truly capture the opportunity in Iraq. The fund's investable universe consists of locally listed companies that have their principal business activities in Iraq as well as foreign listed companies that have the majority of the business in Iraq as a whole including the prosperous Kurdish Region of Iraq (KRI). The AFC Iraq Fund offers access to investments in post conflict recovery potential of Iraq, including the KRI, and/or stability in its territory. The AFC Iraq Fund is managed by Asia Frontier Capital (Iraq) Limited, Cayman Islands under the executive leadership team of Thomas Hugger (CEO & Fund Manager) and Ahmed Tabaqchali (CIO) who have more than 47 years of investment experience as well as an extensive background covering global, emerging, frontier and MENA markets.

The AFC Vietnam Fund invests exclusively in listed Vietnamese equities to capture value in growth companies with a focus on the small to medium size companies. This market segment offers a unique investment opportunity as the valuation gap between large- and small-cap stocks in Vietnam is presently much wider than in comparable neighboring markets and the valuations are significantly depressed versus their regional peers. The fund adopts a fundamental-quantitative approach and employs an in-house earnings model to identify attractive companies where we see high growth opportunities. In conjunction with targeting the maximum upside potential the portfolio has been structured to mitigate corporate government and liquidity risks. The fund invests in a diversified portfolio of 70-90 attractively valued companies to carefully control concentration risk.  This approach allows the fund to sell, or buy, positions without having a significant market impact. The fund is directed under the executive leadership of Thomas Hugger and Andreas Vogelsanger who have more than 50 years combined experience managing investments in frontier markets, Asia and around the world.

For more information about the fund, management team and investment strategy please contact us at info@asiafrontiercapital.com.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos to visit portfolio companies and other companies on our shortlist. The photos in this article are all by AFC.

Asia Frontier Capital Travel Report: Laos

China Specialist, Auto and Industrial Specialist

Victoria Li

It is well recognised that the New Energy Vehicle (NEV) growth in China (and elsewhere for that matter) has been fueled by subsidies with the governments competing to burnish their 'green' credentials. The central government has announced the plan to reduce the subsidy for NEV in a phased manner out to 2020. The local governments now can only provide subsidy up to only 50% of the level provided by the central government. The economic attractiveness of buying an NEV for the average working…

It is well recognised that the New Energy Vehicle (NEV) growth in China (and elsewhere for that matter) has been fueled by subsidies with the governments competing to burnish their 'green' credentials. The central government has announced the plan to reduce the subsidy for NEV in a phased manner out to 2020. The local governments now can only provide subsidy up to only 50% of the level provided by the central government. The economic attractiveness of buying an NEV for the average working…

China NEV - Driving in the Post-Subsidy World

We have revised our near-term Macau gross gaming revenue growth forecast, based on our industry checks that point to improvement in both VIP and mass play. We forecast total GGR to grow 6% in 2017 (versus 3% previously), and we still expect high-single-digit average annual growth in 2018 through 2020 (4% in 2018, 11% in 2019, and 8% in 2020) as key infrastructure that improves capacity in Macau comes on line, followed by mid-single-digit growth in 2021-25 (no change). To account for the time value of money and increased industry gaming revenue forecasts, we increase our fair value estimate for <a href="https://www.smartkarma.com/entities/182" target="_blank" data-smartkarma-citation="entities:182:1">Sands China Ltd (1928 HK)</a> , <a href="https://www.smartkarma.com/entities/806" target="_blank" data-smartkarma-citation="entities:806:1">Galaxy Entertainment Group Limited (27 HK)</a> , <a href="https://www.smartkarma.com/entities/805" target="_blank" data-smartkarma-citation="entities:805:1">Sjm Holdings Ltd (880 HK)</a> and <a href="https://www.smartkarma.com/entities/472" target="_blank" data-smartkarma-citation="entities:472:1">MGM China Holdings Ltd (2282 HK)</a> . Our fair value estimates for narrow-moat <a href="https://www.smartkarma.com/entities/2406" target="_blank" data-smartkarma-citation="entities:2406:1">Melcolot Ltd (8198 HK)</a> and narrow-moat <a href="https://www.smartkarma.com/entities/473" target="_blank" data-smartkarma-citation="entities:473:1">Wynn Macau Ltd (1128 HK)</a> remain unchanged as we become slightly more conservative on the ramp-up in margins of their new casino resorts. Our six Macau gaming names are fairly valued. We also plan to increase our fair value estimates for <a href="https://www.smartkarma.com/entities/807" target="_blank" data-smartkarma-citation="entities:807:1">Las Vegas Sands Corp (LVS US)</a> and <a href="https://www.smartkarma.com/entities/606" target="_blank" data-smartkarma-citation="entities:606:1">Wynn Resorts Ltd (WYNN US)</a> by mid-single-digit rates, and our <a href="https://www.smartkarma.com/entities/16227" target="_blank" data-smartkarma-citation="entities:16227:1">MGM Resorts International (MGM US)</a> by a low-single-digit rate.We are prevented from further upgrading our long-term-focused fair value estimates by the potential of: 1) future policies controlling capital outflow from China; 2) a smoking ban in the VIP gaming area, with the exception of smoking lounges; and 3) more stringent license renewal terms--for example, a higher gaming tax.Analyst: Chelsey Tam

We have revised our near-term Macau gross gaming revenue growth forecast, based on our industry checks that point to improvement in both VIP and mass play. We forecast total GGR to grow 6% in 2017 (versus 3% previously), and we still expect high-single-digit average annual growth in 2018 through 2020 (4% in 2018, 11% in 2019, and 8% in 2020) as key infrastructure that improves capacity in Macau comes on line, followed by mid-single-digit growth in 2021-25 (no change). To account for the time value of money and increased industry gaming revenue forecasts, we increase our fair value estimate for Sands China Ltd (1928 HK) , Galaxy Entertainment Group Limited (27 HK) , Sjm Holdings Ltd (880 HK) and MGM China Holdings Ltd (2282 HK) . Our fair value estimates for narrow-moat Melcolot Ltd (8198 HK) and narrow-moat Wynn Macau Ltd (1128 HK) remain unchanged as we become slightly more conservative on the ramp-up in margins of their new casino resorts. Our six Macau gaming names are fairly valued. We also plan to increase our fair value estimates for Las Vegas Sands Corp (LVS US) and Wynn Resorts Ltd (WYNN US) by mid-single-digit rates, and our MGM Resorts International (MGM US) by a low-single-digit rate.We are prevented from further upgrading our long-term-focused fair value estimates by the potential of: 1) future policies controlling capital outflow from China; 2) a smoking ban in the VIP gaming area, with the exception of smoking lounges; and 3) more stringent license renewal terms--for example, a higher gaming tax.Analyst: Chelsey Tam

Upgrading 2017 Macau Gaming Revenue Growth to 6%; Policy Risks Prevent Robust Recovery

China's Passenger Vehicle sales is very likely to have an annual decline for the first time in 2017. The 15% y/y growth in 2016 (which saw Chinese car sales grow by an equivalent of car sales in Germany) was a result of the sales tax being reduced from 10% to 5%. Though the sales tax has been increased to only 7.5%, vs. previously expected 10%, in 2017, consumers brought forward purchases last year. Slowing property sales growth and high property prices also mean less discretionary income for car purchases. SUV may still outperform.

China's Passenger Vehicle sales is very likely to have an annual decline for the first time in 2017. The 15% y/y growth in 2016 (which saw Chinese car sales grow by an equivalent of car sales in Germany) was a result of the sales tax being reduced from 10% to 5%. Though the sales tax has been increased to only 7.5%, vs. previously expected 10%, in 2017, consumers brought forward purchases last year. Slowing property sales growth and high property prices also mean less discretionary income for car purchases. SUV may still outperform.

China

Rastar Group develops, manufactures, markets and sells electronic and electrical toy cars and plastic toys. The Company's products include model cars, toy cars, and electric remote control toy cars.

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Rastar Group A (300043 CH)

Expected Macau Smoking Ban Creates a Level Playing Field for Operators

This week the Macau government proposed to the Second Standing Committee of Macau Legislative Assembly to allow smoking only in smoking lounges in...

Morningstar, Inc.

Asia Frontier Capital Travel Report: Laos

In line with our process of being on the ground in the countries we invest in, Scott Osheroff, Analyst at Asia Frontier Capital, traveled to Laos...

Asia Frontier Capital

China NEV - Driving in the Post-Subsidy World

It is well recognised that the New Energy Vehicle (NEV) growth in China (and elsewhere for that matter) has been fueled by subsidies with the...

Victoria Li

Upgrading 2017 Macau Gaming Revenue Growth to 6%; Policy Risks Prevent Robust Recovery

We have revised our near-term Macau gross gaming revenue growth forecast, based on our industry checks that point to improvement in both VIP and...

Morningstar, Inc.

China Auto 2017 - Hangover Time

China's Passenger Vehicle sales is very likely to have an annual decline for the first time in 2017. The 15% y/y growth in 2016 (which saw Chinese...

Victoria Li

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