Global Gaming and Casinos Industry Specialist, Casino Business Review LLC

Howard J Klein

I am a 25+ year c-level executive of the casino industry in operations, marketing, international development and strategic planning. Currently, a consultant specializing in the casino space. Industry expert contributor and publisher of a subscription letter called "The House Edge". Extensive experience in marketing and development in the Asian gaming market while a senior executive at Caesars, Ballys Grand and Trump Taj Mahal.
Part of senior executive teams that valued acquisitions and mergers with companies in the casino, hotel, d entertainment rant  and restaurant space.

Global Gaming and Casinos Industry Specialist

Equity Bottom-Up

<ul>
<li>Sector is too cheap to pass on in spite of China macro headwinds and general market mayhem of the moment. We like the entire Macau sector, but focus in here on our three favorites.</li>
<li>Nomura is assuming VIP will be down 10%, mass up 4% and slots up 3%. Based on this they envision estimated returns for key Macau peers could rise between 17% and 35%. We are more bullish.</li>
<li>Market historically misreads player psychology: Demand is inelastic, players more resilient in times of macro economic stress.</li>
</ul>The stocks of leading players in the Macau gaming sector have taken a drubbing since late last summer after two strong years of gains. The two leading culprits: Macro China economic headwinds which have been exacerbated by the US/China tariff disputes dampening forward sentiment. The tone of the Q3 earnings call by Wynn Resorts Ltd(NASDAQ:WYNN) CEO Maddox anticipated continued slowing down of the VIP segment through Q4 and perhaps beyond. As we've noted in a prior insight, Melco Resorts &amp; Entertainment's (NASDAQ:MLCO) was somewhat more optimistic. But overall the prevailing sense among the entire sector is that the VIP slowdown has a ways to go since there appears to be no discernible quick fix to China's slowing economy as well as no looming trade deal between President Trump and President Xi Jinping. Mr. Market in our view, has not fully valued what we believe will be a far more bullish cast to the 2019 growth of the mass segment.Now midway through Q4 we take our first pass on a 2019 forecast. We employ many of the same metrics as do standard buy side analysts. But we add into that mix our own internal analytics focused on historical player behavior patterns from the inside out gathered over our 30 years as a senior executive and consultant in the space. Our takeaway: We are looking for an 8% growth number for 2019 GGR, somewhat more bullish than that of Nomura as well as Bernstein.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/678/original/49857933-15416564733811476.png?1542818749" class="editor-image img-responsive" data-smartkarma-image-id="70678"></figure><div class="content-caption">More resilient than market sentiment believes</div>Both institutions have issued reports suggesting that while we were not heading for a roaring recovery in the sector, we should not ignore the fact that negative sentiment had grown so bearish that the risk/reward is "skewed to the upside," noted Bernstein. Nomura's assumption envisions 2019 VIP down 10%, mass up 4%, slots up 3%. The report posited that given where the sector was trading now, that if GGR grows only 3% for 2019, reaching from an estimated 2018 base of US$38bn this could imply anywhere between a 17% and 35% upside for selected stocks in the space.We largely agree with the underlying takeaway of both Nomura. And Bernstein as well, noting that they have rated some in the sector to over perform guiding they are "too cheap to ignore." However, our takeaways that employ our own industry centric player behavior metrics developed from observations from the inside out suggest a more bullish outlook. Our internal analytics and data are intellectual property but we can share some of the results of our analysis for this insight./Note that our historical internal analytics suggest that gaming is essentially a product of inelastic demand. A $25 limit baccarat game does not become a $19 game when business slackens or new competitors enter the arena. Elements like game spreads and table limits do vary of course by peak and valley demands. Room rates are massaged up and down also according to market wide visitation trends. But in Macau it is critical to understand that the pure product is gaming which represents over 80% of all revenue as opposed to the Las Vegas Strip where it is around 35%. Yet in both jurisdictions, the product--gaming--remains within historically defined denominational pricing.We have examined both player behavior and the impact of external events.  There is wide consensus that based on sagging VIP, 2019 GGR will result in a range between a minus 2% decline, up to a 3% to 5% y/y increase.We are pricing in a 7% to 8% GGR increase for 2019 which would take the year's total to US$40.4bn to US$41bn. Non gaming revenue will rise to about 11.5% of GGR, up around 2%.Here are the current market shares of sector leaders. Source: Daiwa Capital Markets HK Ltd. We do not translate this share matrix to expected 2019 GGR due to the variables of  normalized hold, gaming position additions or reductions, weather events, junket additions or losses, penetration into wider geography. However if our forecast is met. EBITDA performance will move the sector considerably higher from its present 52 week lows.Macau Market shares:MGM China: 9.5%. Healthy ramp up with second property open and well received to date.SJM: 15.2%. Steady across the spectrum: could vary 1.5% but steady.Wynn: 15.6%: VIP and premium mass will soften but property will also share in mass increases.MLCO: 16.1%. Some loss of share short term. Morpheus Tower and expanding non-gaming amenities in entertainment and dining will sustain recovery.Galaxy: 22.8% Will hold share due to large capacity to service increases in mass visitation.Sands China: 21.1%, Could see some short term erosion but over time, we see share held and possibly up by 1.3%Where does our more bullish cast to net GGR increases for 2019 spring from?1. VIP. We have surveyed many friends and associates who are sub-agents who work on commissions from the major junket operators in Macau. They are closest to the daily changes or lack of same among the player bases they serve. We have compared the general consensus of their input with data from our internal studies conducted among Asian customers during the 2007-2009 global financial crisis. As we suspected, the replies were almost identical. VIP's were not overly concerned about credit availability. The majority of VIP customers with whom they dealt on a regular basis were more concerned about perception than realities in their own businesses. About 15% expected to reduce total trips short term but said they will continue to play to levels more or less as in the past. Few expected significant downturns in their personal cash flows sufficient to entirely abandon visits to Macau related to macro fears. The flow of new patrons into their customer mix is about the same. Many noted that the shrunken travel time due to the HKZM bridge would encourage visitation from customers in shoulder provinces who arrive in Hon Kong by air. "Some people will go broke. It happens at times like this. Its small. They are always replaced by fresh money. These kind of business people are never at a loss for ways to make money," said one rep for one of the big three junket operators.In a sampling of 100 VIP played in our prior internal studies we found that 89% of those who had slowed their trip frequency during times of economic stress, returned to the same pattern of visitation once confidence levels seemed to be returning into the larger economy. There was some evidence of lowered average bets, less total trips among some players. The soft cycles historically tend to fall within an 8 month to 11 month period since we began this measurement back in the 1980s and through the 2007-2009 global financial crisis. Note; Las Vegas strip gaming revenues declined from US$6.6bn in 2006 to US$5.5bn in 2009 and have since rebounded to pre-financial crisis levels in 2017.  It is notable that during the global financial crisis years while Las Vegas dipped, Macau gaming revenue rose from US$10.3bn in 2007 to $US$19.91bn in 2009. This was due to a variety of factors without doubt, but we drilled down on our analytics and saw a pattern of VIP play migrating from Las Vegas to Macau clearly related to the time/distance equation. The availability of unused credit lines play a role in determining destinations in parlous economic times as well as travel and discount incentives.The takeaway: There is some skittishness indeed floating in the VIP sector that is validated by our own historical data. But it is far more short lived. Using our own analytics based on historic trends through economic stress we came up with a 5.5% to 6.4% maximum decline in VIP as opposed to consensus of 10%. Measuring past VIP stress and recovery cycles we see recovery in the segment beginning to build toward 2Q19.Mass: The HKZM Bridge: Potential for increase in GGR mass positive but not yet fully priced in.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/679/original/ea48d890-72de-11e8-aa4d-d2a0e82fc143_image_hires_225347.jpg?1542818805" class="editor-image img-responsive" data-smartkarma-image-id="70679"></figure><div class="content-caption">The bridge is a bigger plus than now imagined.</div>The long delayed bridge has appeared in countless sector analyses as a positive of course. But estimates as to the value of its presenting a considerable shortening of travel time for millions of Macau patrons has not been fully appraised yet. This is partially due to the inclination of some analysts to wait for actual passenger usage before forecasting the possible positive impacts of the travel time value. At writing we are a bit less than one month into the bridge opening for traffic. Official estimates now forecast around 123,000 passengers a day as the facility ramps up. Much of this will naturally come from existing Macau customers who will now have their travel times cut from 3.5 hours to 30 minutes from close feeder cities in the Pearl River delta.Our historical analytics show that the relationship between travel time from feeder cities to a casino property is the single most crucial element among those that comprise the business model for the success or failure of properties. The reduction in time sprung loose by the opening of HKZM is huge. For millions of customers it will liberate a theoretical six hours of potential time spend on Macau. We value this "bonus time" thusly:We take an average loss on a mass baccarat game with a  US$125 limit, input the house edge and normalized hold percentages of the game and that yields a potential of $125 to $145 per hour played depending on the behavior pattern of the players or if a player is a tie bettor. That translates to a theoretical added win potential for "bonus time" of US$750 or more, depending on how many hands per hour are dealt in the range of 60 to 75.Now we factor in variables:1. We do not assume that players arriving via the HKZM bridge will play the entire 6 bonus hours. Some will, others will either use the time to meander, rest, dine, see a show, or shop.2. No matter how much bonus time is in fact spent at the tables there will be an impact on the element of bankroll ruin during the play time sequence. The longer a player stays at a table, the more the house edge comes into play and the likelihood of greater loss increases. This in turn could diminish player cash flow over a given time span, reduce a trip or two.3. Bonus time could lengthen stays of day trippers who no longer have to rush home in contemplation of what was a three hour trip and even decide to stay overnight and leave early the next morning. This will be a positive for midweek hotel occupancy, dining as well as gaming win. Official statistics already have proven that the conversion of day trippers to overnight patrons contributes to total revenue. Bonus time stay overs does the same thing by potentially increasing occupancy levels during midweek, a continuing goal of management in any casino resort worldwide.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/070/680/original/Connectivity%2Bof%2BHZMB%2Bto%2BMajor%2BCities%2Bat%2BPearl%2BRiver%2BWest.jpg?1542818875" class="editor-image img-responsive" data-smartkarma-image-id="70680"></figure><div class="content-caption">Geography and time will be the propulsive force for 2019 GGR</div>Our call: Factoring all of the above we are taking a conservative number of 25,000 of the current average of 70,000 passengers a day now arriving via the bridge as out base number. That comes to 700,000 passengers among who now have bonus time liberated by shortened travel. Due to the many variables in the calculation, we will not ascribe a specific incremental bump in GGR as well as non-gaming revenue sprung from bonus time created by the bridge opening. But it is clear given the demonstrated relationship between casino win and time played, that it will be highly significant and most likely dominated by the mass segment. Using our internal metrics we came up to our 6.5% estimate of the increase in mass that is above those of Nomura and Bernstein.Who benefits?The entire peer group noted in the above market share breakdown will benefit if our total 8% GGR y/y increase in GGR materializes. However we have selected three stocks we believe could benefit disproportionally because they are now so utterly cheap and in this we find ourselves in agreement with both Nomura and Bernstein. Note all amounts shown in USD.Wynn: Price at writing US$100. Our price target is a range between $130 and $185. The lower number evolves based on 11.6X EV/EBITDA. We expect the company to outperform bearish expectations. The stock is trading around 10.5% of estimated 2019 EBITDA compared with an average long term multiple we calculate at around 14X. Key upside mover short term: A decision by Massachusetts officials to imminently grand a final license to the Wynn Boston property now scheduled to open midsummer 2019. Downside risks: Slower than estimated recovery of VIP, an adverse decision by Massachusetts on the Encore property or longer than anticipated softness in the company's VIP and premium mass bases. Overall: We think given the beating the stock has taken it just has too much upside built into its basic business not to recognize that it is undervalued.Las Vegas Sands: Price at writing $50. Our base price target of $68 comes from 13.5X 2019 EV/EBITDA. Its dominate market share suggests it will disproportionately benefit from the increase w forecast particularly in mass and penetration of shoulder provinces to Guangdong arrivals. Contrary to some analyst opinions we do not think LVS will see market share erosion due to increases in citywide supply. We suspect its properties will actually gain share with the mass ramp up. This will further increase as the current pipeline project to convert its Cotai Central complex to The Londoner theme in the out years. On a conviction basis above the PT noted above, we think LVS is the single most well positioned potential licensee for the Japan IR initiative. Decisions on the three first licensees are expected by 3Q19. If successful this will be worth $12 to the price on news.Downside risks: Long term concession renewal uncertainties shared by all concession holders loom after 2020 and though it is widely believed that all will be renewed with some new mandates, it is a factor in the out years calculation. Also no clear management succession plan is in place for current found, Chairman and CEO, Sheldon G. Adelson, who is nearing 85 years of age. The company has a good bench but the market sees this as a negative. Also to be noted is that Singapore earnings could weaken due to a strong USAD.Overall: From where it now sits, LVS, financially strong, dominant in mass, not overly committed in either Las Vegas or US regionals, represents a screaming buy.MGM Resorts International Inc: Price at writing $25. Our base case price target is $32 to $33. We are using a 10.5X multiple sprung out of a 2019E EBITDA below its long term average multiple of 10.8X, We assume the company's Macau properties at 12 to 13.5X EBITDA. After an aggressive period of acquisitions and a spin off of its realty into its controlled REIT (MGM Properties,Inc(NYSE:MGP) it has begun to pivot by focusing on improving operational margins, deleveraging debt and betting on a recovery in Las Vegas where it dominates. We see EBITDA growing at a 10%CAGR over the next 3 to 4 years. Risks: Las Vegas may not recover its convention business as rapidly as MGM believes putting them an an oversupply situation there. It's Macau properties may not have as much ramp up from its high single digit market share as contemplated.Overall: Its diverse asset portfolio covers the three prime global markets in gaming: Macau, the Las Vegas Strip and US regionals which have shown good performance through Q3 this year. It is less vulnerable to VIP decline than is Wynn, and the most aggressive of the three picks here in the expansion of sports betting in the US.Our takeaway: We acknowledge softness in the VIP sector but see faster recovery there based on historic patterns rather than only awaiting macro headwinds to diminish. We see higher incremental revenue gains in mass than what is generally being forecast by standard analysis. We agree that the basis for a move into the sector now, particularly in these three stocks, is their very attractive entry points.


Sector is too cheap to pass on in spite of China macro headwinds and general market mayhem of the moment. We like the entire Macau sector, but focus in here on our three favorites.
Nomura is assuming VIP will be down 10%, mass up 4% and slots up 3%. Based on this they envision estimated returns for key Macau peers could rise between 17% and 35%. We are more bullish.
Market historically misreads player psychology: Demand is inelastic, players more resilient in times of macro economic stress.
The stocks of leading players in the Macau gaming sector have taken a drubbing since late last summer after two strong years of gains. The two leading culprits: Macro China economic headwinds which have been exacerbated by the US/China tariff disputes dampening forward sentiment. The tone of the Q3 earnings call by Wynn Resorts Ltd(NASDAQ:WYNN) CEO Maddox anticipated continued slowing down of the VIP segment through Q4 and perhaps beyond. As we've noted in a prior insight, Melco Resorts &amp; Entertainment's (NASDAQ:MLCO) was somewhat more optimistic. But overall the prevailing sense among the entire sector is that the VIP slowdown has a ways to go since there appears to be no discernible quick fix to China's slowing economy as well as no looming trade deal between President Trump and President Xi Jinping. Mr. Market in our view, has not fully valued what we believe will be a far more bullish cast to the 2019 growth of the mass segment.Now midway through Q4 we take our first pass on a 2019 forecast. We employ many of the same metrics as do standard buy side analysts. But we add into that mix our own internal analytics focused on historical player behavior patterns from the inside out gathered over our 30 years as a senior executive and consultant in the space. Our takeaway: We are looking for an 8% growth number for 2019 GGR, somewhat more bullish than that of Nomura as well as Bernstein.More resilient than market sentiment believesBoth institutions have issued reports suggesting that while we were not heading for a roaring recovery in the sector, we should not ignore the fact that negative sentiment had grown so bearish that the risk/reward is "skewed to the upside," noted Bernstein. Nomura's assumption envisions 2019 VIP down 10%, mass up 4%, slots up 3%. The report posited that given where the sector was trading now, that if GGR grows only 3% for 2019, reaching from an estimated 2018 base of US$38bn this could imply anywhere between a 17% and 35% upside for selected stocks in the space.We largely agree with the underlying takeaway of both Nomura. And Bernstein as well, noting that they have rated some in the sector to over perform guiding they are "too cheap to ignore." However, our takeaways that employ our own industry centric player behavior metrics developed from observations from the inside out suggest a more bullish outlook. Our internal analytics and data are intellectual property but we can share some of the results of our analysis for this insight./Note that our historical internal analytics suggest that gaming is essentially a product of inelastic demand. A $25 limit baccarat game does not become a $19 game when business slackens or new competitors enter the arena. Elements like game spreads and table limits do vary of course by peak and valley demands. Room rates are massaged up and down also according to market wide visitation trends. But in Macau it is critical to understand that the pure product is gaming which represents over 80% of all revenue as opposed to the Las Vegas Strip where it is around 35%. Yet in both jurisdictions, the product--gaming--remains within historically defined denominational pricing.We have examined both player behavior and the impact of external events.  There is wide consensus that based on sagging VIP, 2019 GGR will result in a range between a minus 2% decline, up to a 3% to 5% y/y increase.We are pricing in a 7% to 8% GGR increase for 2019 which would take the year's total to US$40.4bn to US$41bn. Non gaming revenue will rise to about 11.5% of GGR, up around 2%.Here are the current market shares of sector leaders. Source: Daiwa Capital Markets HK Ltd. We do not translate this share matrix to expected 2019 GGR due to the variables of  normalized hold, gaming position additions or reductions, weather events, junket additions or losses, penetration into wider geography. However if our forecast is met. EBITDA performance will move the sector considerably higher from its present 52 week lows.Macau Market shares:MGM China: 9.5%. Healthy ramp up with second property open and well received to date.SJM: 15.2%. Steady across the spectrum: could vary 1.5% but steady.Wynn: 15.6%: VIP and premium mass will soften but property will also share in mass increases.MLCO: 16.1%. Some loss of share short term. Morpheus Tower and expanding non-gaming amenities in entertainment and dining will sustain recovery.Galaxy: 22.8% Will hold share due to large capacity to service increases in mass visitation.Sands China: 21.1%, Could see some short term erosion but over time, we see share held and possibly up by 1.3%Where does our more bullish cast to net GGR increases for 2019 spring from?1. VIP. We have surveyed many friends and associates who are sub-agents who work on commissions from the major junket operators in Macau. They are closest to the daily changes or lack of same among the player bases they serve. We have compared the general consensus of their input with data from our internal studies conducted among Asian customers during the 2007-2009 global financial crisis. As we suspected, the replies were almost identical. VIP's were not overly concerned about credit availability. The majority of VIP customers with whom they dealt on a regular basis were more concerned about perception than realities in their own businesses. About 15% expected to reduce total trips short term but said they will continue to play to levels more or less as in the past. Few expected significant downturns in their personal cash flows sufficient to entirely abandon visits to Macau related to macro fears. The flow of new patrons into their customer mix is about the same. Many noted that the shrunken travel time due to the HKZM bridge would encourage visitation from customers in shoulder provinces who arrive in Hon Kong by air. "Some people will go broke. It happens at times like this. Its small. They are always replaced by fresh money. These kind of business people are never at a loss for ways to make money," said one rep for one of the big three junket operators.In a sampling of 100 VIP played in our prior internal studies we found that 89% of those who had slowed their trip frequency during times of economic stress, returned to the same pattern of visitation once confidence levels seemed to be returning into the larger economy. There was some evidence of lowered average bets, less total trips among some players. The soft cycles historically tend to fall within an 8 month to 11 month period since we began this measurement back in the 1980s and through the 2007-2009 global financial crisis. Note; Las Vegas strip gaming revenues declined from US$6.6bn in 2006 to US$5.5bn in 2009 and have since rebounded to pre-financial crisis levels in 2017.  It is notable that during the global financial crisis years while Las Vegas dipped, Macau gaming revenue rose from US$10.3bn in 2007 to $US$19.91bn in 2009. This was due to a variety of factors without doubt, but we drilled down on our analytics and saw a pattern of VIP play migrating from Las Vegas to Macau clearly related to the time/distance equation. The availability of unused credit lines play a role in determining destinations in parlous economic times as well as travel and discount incentives.The takeaway: There is some skittishness indeed floating in the VIP sector that is validated by our own historical data. But it is far more short lived. Using our own analytics based on historic trends through economic stress we came up with a 5.5% to 6.4% maximum decline in VIP as opposed to consensus of 10%. Measuring past VIP stress and recovery cycles we see recovery in the segment beginning to build toward 2Q19.Mass: The HKZM Bridge: Potential for increase in GGR mass positive but not yet fully priced in.The bridge is a bigger plus than now imagined.The long delayed bridge has appeared in countless sector analyses as a positive of course. But estimates as to the value of its presenting a considerable shortening of travel time for millions of Macau patrons has not been fully appraised yet. This is partially due to the inclination of some analysts to wait for actual passenger usage before forecasting the possible positive impacts of the travel time value. At writing we are a bit less than one month into the bridge opening for traffic. Official estimates now forecast around 123,000 passengers a day as the facility ramps up. Much of this will naturally come from existing Macau customers who will now have their travel times cut from 3.5 hours to 30 minutes from close feeder cities in the Pearl River delta.Our historical analytics show that the relationship between travel time from feeder cities to a casino property is the single most crucial element among those that comprise the business model for the success or failure of properties. The reduction in time sprung loose by the opening of HKZM is huge. For millions of customers it will liberate a theoretical six hours of potential time spend on Macau. We value this "bonus time" thusly:We take an average loss on a mass baccarat game with a  US$125 limit, input the house edge and normalized hold percentages of the game and that yields a potential of $125 to $145 per hour played depending on the behavior pattern of the players or if a player is a tie bettor. That translates to a theoretical added win potential for "bonus time" of US$750 or more, depending on how many hands per hour are dealt in the range of 60 to 75.Now we factor in variables:1. We do not assume that players arriving via the HKZM bridge will play the entire 6 bonus hours. Some will, others will either use the time to meander, rest, dine, see a show, or shop.2. No matter how much bonus time is in fact spent at the tables there will be an impact on the element of bankroll ruin during the play time sequence. The longer a player stays at a table, the more the house edge comes into play and the likelihood of greater loss increases. This in turn could diminish player cash flow over a given time span, reduce a trip or two.3. Bonus time could lengthen stays of day trippers who no longer have to rush home in contemplation of what was a three hour trip and even decide to stay overnight and leave early the next morning. This will be a positive for midweek hotel occupancy, dining as well as gaming win. Official statistics already have proven that the conversion of day trippers to overnight patrons contributes to total revenue. Bonus time stay overs does the same thing by potentially increasing occupancy levels during midweek, a continuing goal of management in any casino resort worldwide.Geography and time will be the propulsive force for 2019 GGROur call: Factoring all of the above we are taking a conservative number of 25,000 of the current average of 70,000 passengers a day now arriving via the bridge as out base number. That comes to 700,000 passengers among who now have bonus time liberated by shortened travel. Due to the many variables in the calculation, we will not ascribe a specific incremental bump in GGR as well as non-gaming revenue sprung from bonus time created by the bridge opening. But it is clear given the demonstrated relationship between casino win and time played, that it will be highly significant and most likely dominated by the mass segment. Using our internal metrics we came up to our 6.5% estimate of the increase in mass that is above those of Nomura and Bernstein.Who benefits?The entire peer group noted in the above market share breakdown will benefit if our total 8% GGR y/y increase in GGR materializes. However we have selected three stocks we believe could benefit disproportionally because they are now so utterly cheap and in this we find ourselves in agreement with both Nomura and Bernstein. Note all amounts shown in USD.Wynn: Price at writing US$100. Our price target is a range between $130 and $185. The lower number evolves based on 11.6X EV/EBITDA. We expect the company to outperform bearish expectations. The stock is trading around 10.5% of estimated 2019 EBITDA compared with an average long term multiple we calculate at around 14X. Key upside mover short term: A decision by Massachusetts officials to imminently grand a final license to the Wynn Boston property now scheduled to open midsummer 2019. Downside risks: Slower than estimated recovery of VIP, an adverse decision by Massachusetts on the Encore property or longer than anticipated softness in the company's VIP and premium mass bases. Overall: We think given the beating the stock has taken it just has too much upside built into its basic business not to recognize that it is undervalued.Las Vegas Sands: Price at writing $50. Our base price target of $68 comes from 13.5X 2019 EV/EBITDA. Its dominate market share suggests it will disproportionately benefit from the increase w forecast particularly in mass and penetration of shoulder provinces to Guangdong arrivals. Contrary to some analyst opinions we do not think LVS will see market share erosion due to increases in citywide supply. We suspect its properties will actually gain share with the mass ramp up. This will further increase as the current pipeline project to convert its Cotai Central complex to The Londoner theme in the out years. On a conviction basis above the PT noted above, we think LVS is the single most well positioned potential licensee for the Japan IR initiative. Decisions on the three first licensees are expected by 3Q19. If successful this will be worth $12 to the price on news.Downside risks: Long term concession renewal uncertainties shared by all concession holders loom after 2020 and though it is widely believed that all will be renewed with some new mandates, it is a factor in the out years calculation. Also no clear management succession plan is in place for current found, Chairman and CEO, Sheldon G. Adelson, who is nearing 85 years of age. The company has a good bench but the market sees this as a negative. Also to be noted is that Singapore earnings could weaken due to a strong USAD.Overall: From where it now sits, LVS, financially strong, dominant in mass, not overly committed in either Las Vegas or US regionals, represents a screaming buy.MGM Resorts International Inc: Price at writing $25. Our base case price target is $32 to $33. We are using a 10.5X multiple sprung out of a 2019E EBITDA below its long term average multiple of 10.8X, We assume the company's Macau properties at 12 to 13.5X EBITDA. After an aggressive period of acquisitions and a spin off of its realty into its controlled REIT (MGM Properties,Inc(NYSE:MGP) it has begun to pivot by focusing on improving operational margins, deleveraging debt and betting on a recovery in Las Vegas where it dominates. We see EBITDA growing at a 10%CAGR over the next 3 to 4 years. Risks: Las Vegas may not recover its convention business as rapidly as MGM believes putting them an an oversupply situation there. It's Macau properties may not have as much ramp up from its high single digit market share as contemplated.Overall: Its diverse asset portfolio covers the three prime global markets in gaming: Macau, the Las Vegas Strip and US regionals which have shown good performance through Q3 this year. It is less vulnerable to VIP decline than is Wynn, and the most aggressive of the three picks here in the expansion of sports betting in the US.Our takeaway: We acknowledge softness in the VIP sector but see faster recovery there based on historic patterns rather than only awaiting macro headwinds to diminish. We see higher incremental revenue gains in mass than what is generally being forecast by standard analysis. We agree that the basis for a move into the sector now, particularly in these three stocks, is their very attractive entry points.

Macau 2019: Forecasts Beginning to Take More Bullish Tone Even as VIP Growth Slows