DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON US ANALYSTS. US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION®
Client-Driven Solutions, Insights, and Access
12 August 2013
Asia Pacific/Hong Kong
Equity Research
Casinos & Gaming
Macau Legend Development Limited (1680.HK / 1680 HK)
INITIATION
Game changer of the Peninsula
■ Initiating coverage with OUTPERFORM and HK$3.13 TP. We set our target
price at HK$3.13/share, which is determined by applying 7x EV/ (FY17E
EBITDA discounted to 2014 by using WACC of 11.7%). Note that discounted
FY17E EBITDA is adopted to reflect the full potential of MFW. With 31%
potential upside, we initiate coverage on Macau Legend with OUTPERFORM.
■ MFW is the only site with new capacity in the Peninsula. MLD is
currently operating 146 gaming tables in two of SJM’s satellite casinos under
a gaming service agreement and redeveloping Macau Fisherman’s Wharf
(MFW), a large waterfront site located right beside the Macau-HK Ferry
Terminal, which plans to add 1,263 hotel rooms and ~350 additional gaming
tables by end-2016. In our view, on the back of its prime location and
improving infrastructure around the site, the new MFW is likely to see the
greatest growth potential among the Peninsula play in 3-5 years' horizon.
We project MLD to report EBITDA of HK$4.1 bn in FY17E, MFW's first full-
year of operations—implying 40% CAGR over the five-year period.
■ The first batch of new tables is on the way. According to our observation,
the redevelopment of MFW has already kicked off. We expect management to
start the discussion of new the tables grant with DICJ shortly, and the first batch
of tables is likely to come online within the next 12 months. While the market is
cautious about the timeline and actual number of new tables, the receipt of
some new tables could be a significant re-rating catalyst.
■ Investment risk. MFW’s redevelopment projects are a pre-condition for the
grant of 350 additional tables. Yet, there is no assurance from DICJ on the
number or the timing of new tables that MLD could receive.
Share price performance
92
97
102
2
2.5
3
3.5
4
Jul-13
Price (LHS) Rebased Rel (RHS)
The price relative chart measures performance against the
HANG SENG INDEX which closed at 21807.56 on 09/08/13
On 09/08/13 the spot exchange rate was HK$7.75/US$1
Performance Over 1M 3M 12M Absolute (%) -0.42 — — Relative (%) -4.7 — —
Financial and valuation metrics
Year 12/12A 12/13E 12/14E 12/15E Revenue (HK$ mn) 1,500.1 1,821.8 2,188.7 4,394.5 EBITDA (HK$ mn) 750.3 886.7 1,180.1 1,947.0 EBIT (HK$ mn) 603.4 717.7 951.9 1,539.5 Net profit (HK$ mn) 535.3 580.7 890.9 1,463.5 EPS (CS adj.) (HK$) 0.12 0.10 0.14 0.23 Change from previous EPS (%) n.a. Consensus EPS (HK$) n.a. — — — EPS growth (%) -38.4 -14.2 41.0 64.3 P/E (x) 20.2 23.6 16.7 10.2 Dividend yield (%) 0 0 0 0 EV/EBITDA (x) 22.0 17.3 13.7 8.3 P/B (x) 2.0 2.5 2.3 1.9 ROE (%) 16.2 10.6 14.8 20.3 Net debt/equity (%) 30.5 7.7 18.9 16.5
Source: Company data, Thomson Reuters, Credit Suisse estimates.
Rating OUTPERFORM Price (09 Aug 13, HK$) 2.39 Target price (HK$) 3.13¹ Upside/downside (%) 31.0 Mkt cap (HK$ mn) 14,895 (US$ 1,921) Enterprise value (HK$ mn) 15,326 Number of shares (mn) 6,232.18 Free float (%) 19.0 52-week price range 2.43 - 2.33 ADTO - 6M (US$ mn) 2.0
*Stock ratings are relative to the coverage universe in each
analyst's or each team's respective sector.
¹Target price is for 12 months.
[V] = Stock considered volatile (see Disclosure Appendix).
Research Analysts
Isis Wong
852 2101 7109
Kenny Lau, CFA
852 2101 7914
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 2
Focus charts and table Figure 1: Revenue sharing model—mass-market segment Figure 2: Revenue sharing model—VIP segment
Gross Gaming Revenue
SJM
$40
MLD
$55
SJM
$5
$100
Gaming tax, special
levies, table premium
Gross Gaming Revenue
SJM
$40
MLD
$2
SJM
$3
MLD’s income
$100
$2
$55
Gaming promoters
$55
Gaming tax, special
levies, table premium
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
Figure 3: MFW's redevelopment timeline—by construction period
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Yacht Club and Public Pier
Shopping, dining and entertainment Colonnade
The Prague Harbour View Hotel
The Palace Hotel
The Legendale Hotel Macau
General entertainment and cultural facility
Refurbishment of Babylon Casino and Rocks Hotel
Others
Construction period
2013 2014 2015 2016
Source: Company data
Figure 4: MLD's income projection Figure 5: MLD's EBITDA projection by properties
-
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Gaming service income Non-gaming revenue
HK$mn
2012-2017 CAGR = 47%
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Landmark Macau MFW
HK$mn
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 3
Game changer of the Peninsula MLD: The second largest gaming service provider
In Macau, 19 of the 35 existing casinos operate under service agreements with three of the
six concessionaires/sub-concessionaires. MLD is the second largest gaming service
provider in Macau, and operates two of SJM’s 14 satellite casinos at its two main properties,
namely Pharaoh’s Palace Casino (Pharaoh) at The Landmark Macau and Babylon Casino
(Babylon) at Macau Fisherman’s Wharf (MFW). Under the service agreement, MLD operates
the casinos for SJM and shares 2% to 55% of gross gaming revenue (GGR) generated by the
high-roller tables and mass-market tables/slots, respectively. In 2012, we estimate that the
casinos operated by MLD contributed to 19% of SJM’s total revenue from satellite casinos.
The only site with new capacity in the Peninsula
Following the completion of its acquisition of MFW in May 2012, the company is planning
to redevelop the site to add 1,263 hotel rooms across three new hotels, 350 additional
gaming tables and a wide range of new facilities—including a yacht club and a canopied
open-air shopping, dining and entertainment colonnade, with a budget capex of HK$6.8
bn. MFW is likely to be the most scalable non-gaming properties and the only site with
new capacity in the Peninsula in the near term. Therefore, we believe: (1) the addition of
these new attractions, (2) MFW’s superior location (right beside the Macau-HK Ferry
Terminal), (3) improving transportation, including the Lotus Square light rail station due to
be completed by 2015 adjacent to MFW, and (4) the close proximity to the Hong Kong-
Zhuhai-Macau bridge to be completed around 2016, could provide a boost to the traffic to
MFW, as well as the Peninsula as a whole.
Attractive growth prospects on capacity expansion
As advised by DICJ, the current limit of 3% annual increase of tables would not be an
obstacle to MLD’s application of 350 additional tables, but it would depend on the progress of
redevelopment at MFW. Thus, we expect the additional gaming tables to be allocated across
the properties at MFW evenly over 2014-16, as the redevelopment is rolled out in phases.
According to our observation, the redevelopment of MFW has already kicked off. We expect
management will start the discussion of the new tables grant shortly, and the first batch of
tables is likely to come online within the next 12 months—even slightly ahead of Cotai peers
in the next casino opening cycle. We estimate the group EBITDA to rise from HK$750 mn in
FY12 to HK$4,055 mn in FY17E, the first year of full operation for MFW—implying 40%
CAGR over the five-year period.
Initiating with OUTPERFORM
While the market is cautious on the timeline of the new tables grant, we believe the
approval for new tables could be a significant re-rating catalyst. We set our target price at
HK$3.13/share, by applying 7x EV/(FY17E EBITDA discounted to 2014 by using WACC of
11.7%). Note that discounted FY17E EBITDA, which is the first year of full operation, is
adopted to reflect the full potential of MFW. With 30% potential upside, we initiate
coverage on MLD with an OUTPERFORM rating.
Investment risk
The 350 additional gaming tables are subject to MFW’s redevelopment projects but
approvals are entirely subject to the discretion of the DICJ. There is no assurance on the
number of new tables MLD could get or the timing of new tables. Also, given the reduction of
the size of the Global offerings in July 13, MLD may need to fund the redevelopment project
of MFW by further equity/debt financing in the future.
MLD is the second largest
satellite casino of SJM and
accounted for 19% of the
latter’s aggregate revenue
from satellite casinos in
2012
Adding 350 gaming tables
and 1,263 hotel rooms at
MFW over 2014-16
We project an EBITDA of
HK$4.1 bn in 2017E
We set our target price of
HK$3.12 based on
discounted FY17E EBITDA
No assurance that DICJ
would approve additional
tables.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 4
Financial summary Figure 6: Balance sheet
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Assets
Cash 31 72 112 974 1,178 1,095 2,468 6,188
Inventories 5 5 28 41 50 66 90 105
Accounts receivables 356 415 467 536 657 879 1,552 1,848
Other current assets 655 1,403 2,300 71 71 71 71 71
Net fixed assets 633 685 2,284 3,794 5,585 7,827 8,576 8,145
Other non-current assets 847 781 2,730 2,680 2,631 2,581 2,531 2,481
Total assets 2,528 3,362 7,921 8,096 10,171 12,517 15,287 18,837
Liabilities
Short term debt 171 272 334 356 356 356 356 356
Accounts payables 3,240 357 660 911 1,094 1,978 2,328 2,566
Long term debt 557 1,456 1,405 1,049 2,049 2,049 2,049 2,049
Other non current liability 0 0 198 198 198 198 198 198
Total liabilities 3,968 2,085 2,597 2,514 3,697 4,580 4,931 5,169
Shareholders' equities
Share capital 338 339 523 623 623 623 623 623
Reserves -1,815 885 1,406 -460 431 1,894 4,313 7,625
Share premium 36 52 3,396 5,420 5,420 5,420 5,420 5,420
Total equities -1,441 1,276 5,324 5,583 6,474 7,937 10,356 13,668
Source: Company data, Credit Suisse estimates
Figure 7: Cash flow statement
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Pre-tax profit 497 648 531 581 891 1,464 2,419 3,312
Taxes paid 0 0 0 0 0 0 0 0
Depreciation and amortisation 51 52 104 119 178 357 591 637
Share base payment 0 35 8 0 0 0 0 0
Release of prepaid lease payments 12 12 35 50 50 50 50 50
Exceptional items and others 0 0 -6 123 0 0 0 0
Interest (income)/expense 18 50 61 61 61 76 77 57
Gross cash flow 578 798 733 811 1,180 1,947 3,137 4,055
Net capex -23 -17 -76 -1,629 -1,969 -2,599 -1,340 -205
Net change in working capital -373 -2,691 -608 -49 55 645 -346 -73
Free cash flow 183 -1,910 49 -867 -734 -7 1,450 3,777
Dividends paid 0 0 -5 0 0 0 0 0
Other fund raising 0 0 183 0 0 0 0 0
Others -18 951 -197 2,063 -61 -76 -77 -57
Net cash flow 165 -960 31 1,195 -796 -83 1,373 3,720
Source: Company data, Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 5
MLD: The second-largest gaming service provider Established by David Chow, Co-Chairman, Executive Director and CEO, in 2006, Macau
Legend Development (MLD) is a gaming service provider for two of SJM's (0880.HK,
HK$19.92, OUTPERFORM, TP HK$22.6) 14 satellite casinos at its two main properties—
Pharaoh’s Palace Casino (Pharaoh) at the Landmark Macau and Babylon Casino
(Babylon) at Macau Fisherman’s Wharf (MFW). Under the service agreement, MLD
operates the casinos for SJM and subsequently shares 2% to 55% of gross gaming
revenue (GGR) generated by the high-roller tables and mass-market tables/ slots,
respectively.
Figure 8: Shareholder structure of MLD
Macau Legend Development
David Chow
(Co-chairman, CEO)
Lam Fong Ngo
(Vice-chairman)
Li Chi Keung
(former Director)
The Legend Club
Ina Chan
SJM (880.HK)
Pacbridge Capital
(Financial advisor)
Other stakeholders
(connected)
30.8% 18.7% 13.9% 1.1% 15% 3.4% 1.1% 0.4%
Other public
shareholders
15.6%
Source: Company data, Credit Suisse estimates
The Landmark Macau is a highly efficient property. Despite SJM’s sharing of 3-5% of GGR
unlike other gaming licence holders, each gaming table at The Landmark Macau
generates a similar level of EBITDA as Altira of Melco Crown (MPEL.OQ, US$26.4,
OUTPERFORM, TP US$27.4) and The Plaza of Sands China (1928.HK, HK$42.25,
OUTPERFORM, TP HK$42), suggesting strong customer relationship and execution.
Gaming service model in the Macau region
History
Gambling in Macau was legalised in 1847 under the Portuguese rule and was operated
under a monopoly franchise until 2002 after the Macau government initiated a bidding
process to grant three new gaming concession licences in late 2001.SJM was awarded
the first concession, followed by Wynn Macau (1128.HK, HK$21.0, NEUTRAL, TP
HK$22.3) and Galaxy (0027.HK, HK$41.25, OUTPERFORM, TP HK$42.6). A subsequent
process allowed each concessionaire to grant one sub-concession, which went to MGM
China (2282.HK, HK$22.3, OUTPERFORM, TP HK$19.8), Melco Crown and Sands
China, respectively.
There are six gaming
concession and sub-
concession licences in
Macau
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 6
Figure 9: The concession regime in Macau
Concessionaires SJM Galaxy Wynn Macau
Committed investment MOP4.7bn MOP8.8bn* MOP4.0bn
Expiry 31 March 2020 26 June 2022 26 June 2022
Gaming taxes and levy
- Special gaming tax 35% 35% 35%
- Special levy 3% 4% 4%
Total 38% 39% 39%
Sub-concessionaires MGM Grand Paradise Venetian Macau (VML) Melco PBL
Committed investment MOP4.0bn MOP4.4bn * MOP4.0bn
Sub-concession premium US$200mn N/A * US$900mn
Expiry 31 March 2020 26 June 2022 26 June 2022
Gaming taxes and levy
- Special gaming tax 35% 35% 35%
- Special levy 4% 4% 4%
Total 39% 39% 39%
Source: Company data, DICJ,Credit Suisse estimates
* VML did not pay any sub-concession premium to Galaxy, instead VML is responsible for MOP4.4bn of
Galaxy's original investment commitment under the sub-concession contract
Most of the gaming tables in Macau are not actually operated by the concessionaires or
sub-concessionaires, but engage a third party, i.e., the gaming service provider, to provide
gaming services—including marketing, promotion, publicity, customer development and
introduction, and coordination of activities—at the casinos. These casinos are known as
“satellite casinos” in SJM.
Pursuant to the Service Agreement, MLD has the right to nominate a president to oversee the
daily operations at the casinos subject to SJM’s approval. Also, the employees responsible for
gaming operations are nominated by MLD and subsequently employed by SJM.
MLD is the second-largest gaming service providers in Macau
As of 31 December 2012, 19 of the 35 casinos in Macau, which contained 1,174 tables,
are operating under service agreements among the total of six concessionaires and sub-
concessionaires, and various providers. Among them, MLD is the second-largest service
provider in terms of the total number of gaming tables and operates two of SJM’s 14
satellite casinos.
However, most of the tables
are actually operated by a
gaming service provider
engaged by the
concessionaire and sub-
concessionaire
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 7
Figure 10: Summary of casinos operating under service agreements
Concessionaire/ Number of gaming tables % of total
No. Property name Sub-concessionaire VIP Mass-market Total tables
1 Casino L’Arc Macau SJM 112 58 170 14%
2 Casino VIP Legend/Pharaoh SJM 63 60 123 10%
3 Casino Ponte 16 SJM 18 91 109 9%
4 Casino Golden Dragon SJM 21 65 86 7%
5 Casino Lan Kwai Fong SJM 30 54 84 7%
6 Casino Greek Mythology SJM 48 32 80 7%
7 Casino Emperor Palace SJM 13 64 77 7%
8 Rio Casino Galaxy 12 50 62 5%
9 Casino Fortuna SJM 18 40 58 5%
10 Casino Jimei SJM 27 20 47 4%
11 Casino Casa Real SJM 4 44 48 4%
12 Grand Waldo Casino Galaxy 15 23 38 3%
13 Waldo Casino Galaxy 15 22 37 3%
14 Casino Diamond SJM 6 27 33 3%
15 Taipa Square Casino MPEL 2 32 34 3%
16 Casino Kam Pek Paradise SJM 0 26 26 2%
17 Casino Grandview/MJC SJM 3 21 24 2%
18 Casino Babylon SJM 0 23 23 2%
19 President Casino Galaxy 0 15 15 1%
Total 407 767 1,174
Source: Company data, Union Gaming Research Macau
In 2012, the casinos operated by MLD contributed to 23% and 13% of SJM’s aggregate
GGR generated from high-roller and mass-market tables at satellite casinos, respectively.
Figure 11: MLD’s contribution to SJM’s GGR—VIP Figure 12: MLD’s contribution to SJM’s GGR—mass-
market
0%
20%
40%
60%
80%
100%
2010 2011 2012
Pharaoh (Landmark Macau) Other satelite casinos
0%
20%
40%
60%
80%
100%
2010 2011 2012
Pharaoh (Landmark Macau) Babylon (MFW) Other satelite casinos
Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research
Economics of the gaming service model
Under the latest Service Agreement with SJM, MLD receives a monthly compensation,
from SJM equivalent to: (1) 55% of the GGR from mass-market tables; (2) 2% of the GGR
from high-roller tables and 55% of GGR received on behalf of gaming promoters ; and (3)
40% of GGR from slot machines. Note that Weike, the slot machine provider, has
guaranteed MLD a monthly minimum of HK$700,000 in gross slot wins at the Landmark
Macau. However, if the receipt generated by SJM’s slot machines exceeds HK$700,000,
70% of the gross slot wins would be paid to Weike.
SJM recognises 100% GGR
and rewards MLD with 55%
and 57% of GGR generated
from mass-market and VIP
tables, respectively.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 8
As the concession licence holder, SJM is responsible for the special gaming tax of 35%
and a special levy of 3% of GGR for public development and social responsibility related
contributions in Macau, as well as gaming premium payable to the Macau government,
aggregate accounting for around 40% of GGR.
Figure 13–Figure 16 demonstrate the revenue sharing of GGR of HK$100 under the
gaming service agreement with SJM.
Figure 13: Revenue sharing—mass market segment Figure 14: Revenue sharing—high-roller segment
Gross Gaming Revenue
SJM
Gaming tax, special
levies, table premium
$40
MLD
$55
SJM
$5
$100
Gross Gaming Revenue
SJM
$40
MLD
$2
SJM
$3
MLD’s income
$100
$2
$55
Gaming promoters
$55
Gaming tax, special
levies, table premium
Source: Company data, Credit Suisse research Source: Company data, Credit Suisse research
Figure 15: Sharing of slot win—Babylon Casino (MFW) Figure 16: Sharing of slot win—Pharaoh’s Palace Casino
(the Landmark Macau)
Gross slot win
SJM
$40
MLD’s income
$40
SJM
$20
$100
Gaming tax, special
levies, table premium
Gross slot win
SJM
$40
MLD
$40
SJM
$20
Weike(if exceeded monthly guarantee net
slot win of HK$700,000)
MLD’s income
$28
$100
$12
Gaming tax, special
levies, table premium
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
In the event of a gross gaming loss, MLD would share with SJM a monthly amount
equivalent to 55% of such gaming loss generated by the mass-market, and 57% of gaming
losses incurred by the VIP rooms (in which the gaming promoters will be liable for 55% of
the loss) and 40% of that generated from slot machine operations (in which Weike will be
responsible for such loss at the Landmark Macau, but not Babylon, as well).
MLD also shares the
gaming loss with SJM
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 9
The Landmark Macau: Highly efficient property
The Landmark Macau, one of MLD’s two major properties, comprises Pharaoh’s Palace
Casino and offers 446 rooms and suites, recreational and dining space, retail shops,
commercial and office premises, and residential apartments. The Landmark Macau operated
60 mass market gaming tables, 63 VIP gaming tables and 212 slot machines as at 31
December 2012. Currently, there are eight junkets operating in Landmark Macau.
Relatively high daily net win per table
Despite the relatively second-tier properties, in our view, Pharaoh's daily net win per table
is among the highest within the industry in both the high-roller and mass-market segments,
suggesting a close customer relationship and highly efficient operations at the casino.
Figure 17: Comparison of daily net win/table across
casinos—high-roller segment
Figure 18: Comparison of daily net win/table across
casinos—mass-market segment
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2009 2010 2011 2012
SJM Galaxy MPEL MGM China
Sands China Wynn Macau Landmark Macau
HK$
-
15,000
30,000
45,000
60,000
75,000
90,000
2009 2010 2011 2012
SJM Galaxy MPEL
MGM China Sands China Wynn Macau
Landmark Macau MFW
HK$
Source: Company data, Union Gaming Research Macau Source: Company data, Union Gaming Research Macau
Note that the lower net win in 2012 was mainly due to the renovation of gaming areas,
which hindered the casino operating at full efficiency. The renovation work in the gaming
areas was completed in end-2012, and that of hotel rooms and other non-gaming areas is
expected to be completed by end-2013.
Figure 19: Landmark Macau—The lobby Figure 20: Landmark Macau—renovated room
Source: Company website Source: Company website
Casino at Landmark Macau
generates relatively high
daily net win per table
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 10
Similar table efficiency as Altira and The Plaza
As gaming tables are deemed to be scarce resources in Macau, and more than 80% of
casino operators’ earnings are generated from the gaming business, we believe it is important
for a casino to maximise the profitability of each table. We compare the EBITDA generated by
each gaming table across casinos in Macau in assessing the efficiency of tables. Despite the
lower gaming margin than other gaming concession holders due to SJM’s sharing 3-5% of
GGR versus peers who do not have to pay, the property EBITDA of The Landmark Macau is
similar to that of Altira of MPEL and The Plaza (Four Seasons) of Sands China in 2012—
again suggesting the high efficiency of table utilisation within the property.
Figure 21: 2012 property EBITDA/tables across casinos
0.00 0.50 1.00 1.50 2.00 2.50 3.00
Venetian
Sands Macao
Wynn Macau
Galaxy Macau
City of Dreams
StarWorld
MGM Macau
Grand Lisboa
The Plaza (Four Seasons)
Altira
The Landmark Macau
Cotai Central
US$mn)
Source: Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 11
The only site with new capacity in the Peninsula Both the properties of MLD—The Landmark Macau and Macau Fisherman’s Wharf—are
located at the Macau Peninsula, which has been short of scalable non-gaming offerings to
compete with the integrated resorts at Cotai Strips. However, we believe the landscape is set
to change after the completion of MFW's redevelopment in 2016. Together with improving
infrastructure—including the Lotus Square light rail station due to be completed by 2015
adjacent to MFW and the close proximity to the HK-Zhuhai-Macau bridge to be completed
around 2016—the traffic to MFW and the Peninsula as a whole is set to get a boost.
The largest non-gaming offerings in the Peninsula
Macau Fisherman’s Wharf is the largest waterfront entertainment and leisure complex in
the Macau Peninsula in terms of site area—current site area of 109,495 sq m—and
features Babylon Casino with a gaming hall that consists of 23 mass market gaming tables
and 78 slot machines as at 31 December 2012.
Redevelopment projects to be rolled out in phases during 2014-16
Following the acquisition of MFW in May 2012, MLD is planning to renovate the site into
the largest entertainment, recreational and retail complex in the Macau Peninsula by
adding 1,263 hotel rooms across three new hotels (namely Prague Harbor View Hotel, the
Palace Hotel and the Legendale Hotel Macau), around 350 additional gaming tables and a
wide range of recreational and entertainment facilities—including a yacht club and a
canopied open-air shopping, dining and entertainment colonnade, with a budgeted capex
of HK$6.8 bn.
Figure 22: The blueprint of new Macau Fisherman's Whaft (to be completed by 2016)
Source: Company data
The new MFW is set to
change the competitive
landscape of the Peninsula
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 12
The project involves the redevelopment of existing facilities, including Babylon Casino and
Rocks Hotel, and the addition of new facilities, including three new hotels, a general
entertainment and cultural facility, a canopied open-air shopping, dining and entertainment
colonnade, a yacht club at the Marina and other attractions. The existing Tang Dynasty
complex and Vulcania will be demolished.
Figure 23: Redevelopment timeline—by construction period
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Yacht Club and Public Pier
Shopping, dining and entertainment Colonnade
The Prague Harbour View Hotel
The Palace Hotel
The Legendale Hotel Macau
General entertainment and cultural facility
Refurbishment of Babylon Casino and Rocks Hotel
Others
Construction period
2013 2014 2015 2016
Source: Company data
Figure 24: Summary of expansion plan and related capex projection
Capacity Capex
Capex schedule Hotel rooms Gaming tables (HK$ mn)
MFW redevelopment:
Prague Harbour View Hotel (4Q14)–4-stars 444 n.a. 1,591
Palace Hotel (3Q15)–5-star deluxe 219 117 2,064
Legendale Hotel Macau (2Q16)–5-star deluxe 600 117 2,060
General (4Q15) 647
Yacht club (2Q14) 70
Canopied open-air colonnade 42
Refurbishment of existing facilities and other works 72 139 156
Land premium 135
Subtotal 1,335 373 6,765
Landmark Macau–renovation 446 123 430
Total 1,781 496 7,195
Source: Company data
Given that there is no similar recreational offering within the Macau Peninsula or even in
Cotai, together with its strategic location along the outer harbour and beside the Macau
Ferry Terminal, we believe the redeveloped MFW will be able to attract more traffic.
The construction work has been kicked off
The redevelopment of MFW has been kicked off. In particular, the construction work for
the first of the three new hotels, The Prague Harbour View, has started, and the Tang
Dynasty is set to be demolished.
MLD plans to rejuvenate the
MFW site with three new
hotels and a variety of
entertainment and leisure
facilities
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 13
Figure 25: Construction site of first hotel Figure 26: The Tang Dynasty set to be demolished
Source: Company data Source: Company data
Improving infrastructure to stimulate traffic to MFW
On the other hand, the infrastructure of Macau has been consistently improving. To
facilitate the connections to Macau, several transportation improvements to the city have
been recently completed, such as the Guangzhou-Zhuhai Intercity Railway, which reduces
the travel time between Guangzhou and Zhuhai from two hours to approximately 45
minutes. In fact, MFW’s location is superior, as it is close to the Macau-HK Ferry
Terminal—the entry point to Macau for 25% of the visitors who arrived in 2012.
Figure 27: Locations of MLD’s properties
Macau Fisherman’s
Wharf
The Landmark
Macau
Lotus Square station
(2014/15)
Macau-HK Ferry
Terminal
Taipa
Hengqin
Source: Google maps, Credit Suisse research
Connectivity to MFW is expected to increase further due to a number of infrastructure
projects in the pipeline, including the Macau Light Rail System and Hong Kong-Zhuhai-
Macau bridge, to be completed in 2015 and 2016, respectively. In particular, the Lotus
Square light rail station of the Macau Light Rail System is adjacent to the property and will
facilitate traffic to MFW upon completion.
MFW is close to the Macau-
HK Ferry Terminal, and the
Lotus Square station of the
light rail system to be
completed by 2014 is right
outside MFW
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 14
Figure 28: Summary of infrastructure that will facilitate traffic to and within Macau
Infrastructure projects Completion date Main improvement
Guangzhou-Zhuhai Intercity Railway 2012 Reduces travel time between Guangzhou and Zhuhai from two hours to
approximately 45 minutes
Expansion of Border Gate in
Northern Macau
2012 Increases the capacity of the border from 300,000 people per day to > 500,000
people per day
Taipa Ferry Terminal 1H 2013* To have 16 piers for boats with a capacity of up to 400 passengers and three piers
for ships of 1,200 passenger berths
Macau Light Rail System. 2015* Will connect the Macau Peninsula, Taipa and Cotai via 21 different stations
Hong Kong-Zhuhai-Macau bridge 2016* Will link three areas with boundary crossing facilities, access roads and associated
works
* Estimated completion date.
Source: Company data
As a result of the abovementioned transportation improvements, we believe the new
infrastructure will attract more traffic to Macau, and MFW is likely to be one of the major
beneficiaries due to its superior location.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 15
Attractive growth prospect on capacity expansion Looking back to the past few years, GGR growth re-accelerated after the opening of new
casinos in Macau, suggesting this is actually a supply-driven market. Therefore, we
believe MLD’s introduction of an additional 350 gaming tables and 1,263 hotel rooms in
phases during 2014-16 could stimulate GGR growth and allow MLD to capture the uptrend
of tourism and gaming market growth.
While the major development projects have been focused on the Cotai strip over the last
few years, in the coming years, the redevelopment of MFW into an integrated leisure and
entertainment complex is a unique offering in the Peninsula, as well as Macau as a whole.
Note that MFW would be the only operator to add hotel rooms and gaming capacity before
the next casino opening cycle that is due to be kicked off by Galaxy’s Galaxy Macau and
MPEL’s Studio City in 1H15 in Cotai. Therefore, we expect MLD to enjoy the first mover
advantage ahead of the Cotai players when some phases of the redeveloped MFW start
rolling out in 2014.
Figure 29: Cotai projects in the pipeline
Casinos Opening date Gaming capacity Hotels (no. of hotel rooms)
Galaxy Macau II Mid-2015 500 gaming tables Ritz-Carlton (1,100)
(Budget capex: HK$19.6 bn ) ~1,000 slot machines JW Marriott (250)
The Studio City Mid-2015 400-500 gaming tables ~1,650
(Budget capex: HK$16.5 bn) 1,500 slot machines
Wynn Cotai 1Q 2016 400 gaming tables ~2,000
(Budget capex : HK$31 bn) 1,500 slot machines
MGM Cotai Mid-2016 500 gaming tables ~1,600
(Budget capex: HK$20 bn) 2,500 slot machines
SJM Cotai North TBC (CS estimates: 2017) 700 gaming tables ~2,000
(Budget capex: HK$ 27-30 bn) 1,000 slot machines
SJM Cotai South TBC (CS estimates: 2017) n/a ~6,300
(Budget capex : HK$ 25 bn)
Galaxy Macau III & IV TBC (CS estimates: 2017) 1000 gaming tables ~5,500
(Budget capex: HK$50-60 bn) ~3,000 slot machines
The Parisian Macao TBC (CS estimates: 1Q 2016) 450 gaming tables ~3,000
(Budget capex: HK$21 bn) ~2,500 slot machines
Source: Company data, Credit Suisse estimates
Strong demand for gaming and entertainment…
Being the only legalised gambling destination in the Greater China region and offering
extensive entertainment and recreational facilities, Macau is a favourite travel destination
for tourists from Hong Kong and Mainland China. Thanks to the grant of six gaming
licences and the implementation of the Individual Visitor Scheme (IVS) in 2003 to the
Mainland Chinese, Macau has outpaced the Las Vegas strip and become the world’s
largest gaming market since 2006. In 2012, the GGR generated from Macau was six times
of that in Las Vegas Strips.
Major development projects
have been in Cotai in recent
years
Macau is the number one
gambling destination for the
Mainland Chinese
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 16
Figure 30: Comparison of GGR at Macau and Las Vegas
Strips
Figure 31: Macau GGR projection 2007-15E
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Macau Las Vegas Strips
US$mn
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2007 2008 2009 2010 2011 2012 2013E 2014E 2015E
High-roller Mass market Slot
GGR (US$mn)
2007-2012 CAGR = 30%
2012-2015E CAGR = 16%
Source: DICJ, Nevada Gaming Control Board Source: DICJ, Credit Suisse estimates
Under-penetration to Mainland China
Annual visitor arrivals from Mainland China have increased almost three times from 2003
to 17 mn in 2012, of which 46% came from the nearby Guangdong province (Figure 33).
Figure 32: Mainland Chinese visits up by almost three
times from 2003 to 2012
Figure 33: Place of residence of Mainland Chinese
visitors—1Q13
-30
-20
-10
0
10
20
30
40
50
60
70
80
-
2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Mainland Chinese visitations - LHS YoY % chg - RHS
Person th %
Guangdong46%
The rest of Mainland China
37%
Fujian4%
Hunan3%
Jiangsu3%
Beijing2%
Shanghai3%
Tianjin1%
Chongqing1%
Source: DSEC (Statistics and Census Service of Macau) Source: DSEC
However, Macau still looks under-penetrated as far as Mainland Chinese visitors are
concerned, given merely 3% of the IVS eligible citizens, approx. 270 mn Chinese citizens,
were IVS travellers to Macau in 2012 and the majority of Mainland Chinese were from the
nearby Guangdong province. We believe Macau could benefit from more visitor inflow on the
back of rising disposable incomes in Mainland China, which could help sustain and fuel its
development as a mass entertainment and leisure hub in the Pan Pearl River Delta.
Pursuing balance between gaming and non-gaming development
The landscape of Macau has been changing following the opening of Las-Vegas style
casinos over the last few years, where visitors are not simply looking to gamble but are also
looking for quality entertainment, and a recreational and retail experience. The Macau
government is also keen to expand the non-gaming offerings to strike a balanced economic
and social development. As such, we believe the non-gaming facilities expansion, together
We believe Macau is
pursuing a balance between
gaming and non-gaming
offerings
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 17
with the infrastructure improvement in Macau, would help attract more traffic to Macau and
thus stimulate the growth of both the gaming and non-gaming business.
…but supply is rather limited
Introduction of hotel rooms and casinos stimulated GGR growth
Looking at Macau over the last few years, GGR growth re-accelerated after the opening of
new casinos, which introduced approximately 1,800 gaming tables in aggregate in the
Cotai Strip since the opening of Venetian in 2007 and around 400 gaming tables in the
Macau peninsula by MGM China, suggesting the capacity expansion is one of the drivers
for GGR growth.
Figure 34: GGR growth re-accelerated post casinos opening
(40)
(20)
0
20
40
60
80
100
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
Jul-05 Dec-05 May-06 Oct-06 Mar-07 Aug-07 Jan-08 Jun-08 Nov-08 Apr-09 Sep-09 Feb-10 Jul-10 Dec-10 May-11 Oct-11 Mar-12 Aug-12 Jan-13 Jun-13
GGR (US$mn) YoY chg (%) - RHS
GGR (US$mn) %
City of Dreams opened in Jun 09Venetian opened in Aug 07Galaxy Macau opened in May 11
Cotai Central opened in Apr 12
Financial crisis
MGM Grand opened in Dec 07
Source: DICJ, Credit Suisse estimates
On the other hand, even with the addition of approximately 8,500 hotel rooms between
2008 and 2012, hotel room rates and the average occupancy rate in Macau continue to
trend up, suggesting strong demand for hotel rooms in Macau and that the introduction of
more hotel rooms could stimulate further growth.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 18
Figure 35: Total hotel guests and ADR trend Figure 36: Total available rooms at Macau and occupancy
100
110
120
130
140
150
160
170
180
190
0
2
4
6
8
10
12
2008 2009 2010 2011 2012
Total Hotel guests - LHS ADR (US$) - RHS
Millions US$
65
70
75
80
85
90
-
5,000
10,000
15,000
20,000
25,000
30,000
2008 2009 2010 2011 2012
Total available rooms - LHS Average occupacy rate - RHS
Total available rooms %
Source: Company data, DSEC Source: Company data, DSEC
Therefore, we believe the gaming market in Macau is supply-driven, and any subsequent
increase in gaming facilities and hotel rooms is likely to accelerate growth.
Limit of 3% annual increase of tables
Although the existing concessionaires and sub-concessionaires do not place a limit on the
number of gaming facilities or casinos that may be operated, casino operators can only
increase the number of gaming tables they operate upon authorisation from the DICJ.
Despite the continuous increase in table count from 4,610 in 3Q09 to 5,746 in 2Q13, the
annual GGR generated per table continues to trend up. On the one hand, this indicates
the increasing wealth of the Mainland Chinese, on the other, we see that table count is
actually in short-supply relative to gaming demand.
Figure 37: Quarterly gaming table count and GGR growth Figure 38: GGR generated per gaming table
-20
-10
0
10
20
30
40
50
60
70
80
90
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 4Q12
Table counts - LHS GGR YoY growth - RHS
Table counts %
-60
-40
-20
0
20
40
60
80
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1Q06 4Q06 3Q07 2Q08 1Q09 4Q09 3Q10 2Q11 1Q12 4Q12
GGR/table - LHS YoY%chg - RHS
Table counts %
Source: DICJ Source: DICJ, Credit Suisse estimates
Note that the Macau government announced in September 2011 that it would limit the
annual increase of gaming tables to 3% in Macau for 10 years from 2014 onward,
translating to less than 2,000 new tables from 2014-23, unless special authorisation is
granted. This further enhances the scarcity value of the table grant in Macau, especially
after the next casino opening cycle in Cotai kicks off in 2015, adding gaming capacity of
approximately 4,000 tables in aggregate.
Grant of new tables is highly
regulated and subject to
DICJ approval
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 19
MFW: Potential addition of 350 tables
There are a total of six projects in the pipeline in Cotai, which are expected to open during
2015-17; they will combinedly provide gaming capacity of approximately 4,000 gaming
tables with more than 20,000 hotel rooms. We believe DICJ usually considers table grants
a few months before, or even after, the commencement of operations. That said, the
majority of these 4,000 gaming tables to be allocated to the new casinos in Cotai during
2015-17 would require exceptional approval from DICJ, given the current permissible 3%
limit of annual increase in table count.
The current 3% annual limit would not be an obstacle for MLD’s application of 350
additional tables
MLD is currently applying for around 350 additional gaming tables so that it would operate
approximately 500 gaming tables in total within its gaming premises. As advised by DICJ
in writing, the 3% limit in the annual increase of tables would not be an obstacle to MLD’s
application of 350 additional tables. Having said that, the grant of new gaming tables is
entirely at the discretion of the Macau government, in accordance with the investment plan
and market studies presented to the Macau government to support the application.
Therefore, we believe that the additional 350 tables might be approved by DICJ in phases
during 2014-16, according to the redevelopment progress, and allocated across Babylon
Casino and the gaming areas of Palace Hotel and Legendale Hotel in MFW upon project
completion in phases. As the redevelopment project has already kicked off, we believe
that management will start the discussion of new tables shortly. We expect the first batch
of tables to come in within the next 12 months.
Figure 39: MLD's table count projection as at year-end
As of 31 Dec, Nos 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
The Landmark Macau
Pharaoh (current) 108 116 123 127 127 127 127 127
Macau Fisherman's Wharf
Babylon (current) 23 23 101 140 140 140
Palace Hotel (to open in 3Q15) - - - 86 117 117
Legendale (to open in July 2016) - - - - 116 116
Total tables 108 116 146 150 228 352 500 500
Number of new tables 78 124 148 -
Source: Company data, Credit Suisse estimates
The only expansion before 2015 offers attractive
growth prospect
While there will be no new casino openings until 1H15 at the earliest by Galaxy and
MPEL, we believe the rolling out of redeveloped MFW in phases starting from 2H14
should allow MLD to enjoy the first-mover advantage and achieve better than peers’
earnings growth. Furthermore, we believe the completion of a wide variety of recreational
and entertainment facilities at MFW will increase the length of stay of visitors, in particular
inside the MFW, and increase their gaming and non-gaming spending.
The application of 350
additional tables is not
subject to the current limit of
table count in Macau
MLD is likely to enjoy the
first-mover advantage
ahead of Cotai players
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 20
Initiating with OUTPERFORM In our view, the new MFW is likely to see the greatest growth potential among the
Peninsula play in 3-5 years' horizon.
Key assumptions and operation data
In projecting the EBITDA of MLD, we assume the 350 gaming tables would be granted in
three batches after the roll-out of the yacht club in 2Q14 (tables to house at the existing
Babylon Casino) and the completion of the gaming areas planned to house the tables, i.e.
the Palace hotel in 3Q15 and The Legendale Hotel in 1H16.
Figure 40: Average number of tables—based on existence period during the year of grant
As of 31 Dec, Nos 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Landmark Macau
Gaming tables
- High-roller 41 46 57 67 67 67 67 67
- Mass-market 66 66 63 60 60 60 60 60
Subtotal 120 127 127 127 127 127
Slot machines 280 304 258 205 205 205 205 205
Macau's Fisherman Wharf
Gaming tables
- High-roller n.a. n.a. - - 23 58 140 140
- Mass-market n.a. n.a. 23 23 58 105 198 233
Subtotal 23 23 42 163 338 373
Slot machines n.a. n.a. 78 78 200 550 1,000 1,200
Source: Company data, Credit Suisse estimates
Regarding the gross gaming revenue at casinos, we expect the daily net win per VIP table
at The Landmark Macau to resume at a similar level before renovation work in 2013 and
grow at 5% from 2014 onward, leading to overall GGR growth of 11-13% YoY for 2014-15
at the Landmark Macau, which is lower than our forecast of 15-18% 2014-15 GGR growth
of Macau, for the sake of being conservative. While MFW is relatively new, we assume the
new gaming tables could achieve 45-65% of the daily GGR per table as in the Landmark
Macau over the first to fourth year of operations.
Figure 41: Key operating statistics and assumptions—daily net win/table
As of 31 Dec, HK$ 2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Landmark Macau
- High-roller 293,600 367,300 267,900 349,400 366,900 385,300 404,500 424,700
- Mass-market 56,900 69,300 71,200 81,900 91,700 100,900 111,000 116,500
- Slot 608 600 465 936 936 936 936 936
Macau's Fisherman Wharf
- High-roller n.a. n.a. - - - - 182,000 233,600
- Mass-market n.a. n.a. 33,900 39,000 42,400 52,700 68,300 77,700
- Slot n.a. n.a. 93 97 936 936 936 936
*numbers rounded to the nearest hundred
Source: Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 21
Figure 42: Key operating statistics and assumptions—hotel rooms and occupancy rate
Non-gaming 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Landmark Macau
- Number of rooms 446 446 446 390 446 446 446 446
- Occupancy rate (%) 73.6 85.3 85.3 85 85 85 85 85
- ADR (HK$) 1,151 1,132 1,120 1,176 1,235 1,297 1,361 1,429
Rocks Hotel
- Number of rooms 72 72 72 72 72 72
- Occupancy rate (%) 85.3 90 90 90 90 90
- ADR (HK$) 1,392 1,462 1,535 1,612 1,692 1,777
Prague Harbour View Hotel (estimated completion in 4Q14)* 4-star
- Number of rooms 444 444 444 444
- Occupancy rate (%) 12.5 60 70 80
- ADR (HK$) 1,500 1,575 1,654 1,736
The Palace Hotel (estimated completion in 3Q15)* 5-star deluxe
- Number of rooms 219 219 219
- Occupancy rate (%) 25 60 70
- ADR (HK$) 2,500 2,625 2,756
The Legendale Hotel (estimated completion in July 16) * 5-star deluxe
- Number of rooms 600 600 600
- Occupancy rate (%) 25 60
- ADR (HK$) 2,750 2,888
Source: Company data, Credit Suisse estimates
Overall revenue to reach HK$10.3 bn in FY17E
As discussed previously, MLD is neither a concessionaire nor a sub-concessionaire. The
gross gaming revenue generated at the casinos is collected by SJM, which subsequently
rewards MLD with service income, on a monthly basis, based on 2%, 57% and 55% of
GGR generated by outsourced VIP, self-operated VIP and mass-market (both table and
slot), respectively. Based on the assumption in Figure 40–Figure 42, we project MLD to
report revenue of HK$10.3 bn in 2017E, the first year of full operation of MFW, implying
47% CAGR during 2012-17E.
Assuming 60% of new tables would be allocated to mass-market segment
We expect the additional 350 gaming tables to be granted by DICJ in phases upon the
completion of the yacht club and the three hotels. We assume that 60% of new tables will be
allocated to the mass-market segment and the remaining 40% to the high-roller segment.
Direct VIP business might start in 2015
Currently, VIP players are sourced by designated gaming promoters through direct
marketing efforts and relationships. In the long run, MLD intends to operate the direct VIP
segment. In a self-run VIP business, MLD could capture the gaming service income
currently paid to outsourced junkets, i.e. 55% of GGR generated by the high-roller
segment including operating expense, in addition to the existing 2% net sharing of GGR,
but at the same time bearing the operating expenses of the VIP business. We assume half
of new high-roller gaming tables at MFW would be self-operated from 2015 onward.
We expect 2013 daily GGR at Landmark Macau to resume to the level before renovation
Regarding the gross gaming revenue at casinos, we expect The Landmark Macau to
resume daily net wins at a similar level to 2011 (before renovation) in 2013 and then grow
steadily at 5% from 2014 onward. While MFW is relatively new, we assume the new
We expected around 80
new tables to come in by
end-2014
MLD may participate in the
gaming promotion business
indirectly in the future
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 22
gaming areas could achieve 45-65% of the daily GGR per table as in The Landmark
Macau over the first to fourth year of operations.
Figure 43: GGR projections of MLD Figure 44: MLD’s reported revenue projection
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2010E 2011E 2012E 2013E 2014E 2015E 2016E 2017E
High-roller Mass market Slot
HK$mn
0
2,000
4,000
6,000
8,000
10,000
12,000
2010 2011 2012 2013E 2014E 2015E 2016E 2017E
High-roller Mass-market Slot Non-gaming revenue
HK$mn
2012-17 CAGR = 47%
Source: Credit Suisse estimates Source: Company data, Credit Suisse estimates
Following the acquisition of MFW in May 2012, the scope of non-gaming offerings is
widening. We forecast non-gaming revenue—generated mainly from hotel rentals, food
and beverages and retail income—to grow at a 29% CAGR during 2012-17E to reach
HK$1,402 mn in 2017E after the completion of the MFW redevelopment project.
EBITDA to grow at 40% CAGR to HK$4,055 mn in
2017E
We estimate EBITDA margin of 30-36%/2% for mass-market/VIP
The cost structure of casino operations consists mostly of variable costs as the percentage
of GGR, including gaming taxes and special levies and table premium, is fixed at 39-40%
of GGR and junket commission capped at 1.25% of rolling chip turnover. In MLD’s case,
the gaming tax and junket commission are settled by SJM, the concessionaire.
We project the mass-market segment to generate EBITDA margin of 30-36% on GGR
basis, which is lower than the industry average of around 40% due to the SJM’s GGR
sharing of around 5%.
On the other hand, the operating cost of outsourced VIP rooms is borne by the junkets.
Given the minimal utilities and administrative cost for VIP operations borne by MLD, its
EBITDA margin for outsourced VIP business would be roughly equal to the receipt of 2%
sharing of VIP GGR. For the planned direct VIP business, we project the EBITDA margin
to be 6% after the sharing of commission to gaming agents and revenue rebate to
customers, which is lower than the industry average of 8-10% due to SJM’s sharing of
around 3% of VIP GGR.
MLD’s EBITDA margin is
likely to be lower than
industry average due to
SJM’s sharing of revenue
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 23
Figure 45: EBITDA of outsourced VIP segment Figure 46: EBITDA of self-operated VIP segment
Gross Gaming Revenue
SJM
$40
MLD
$2
SJM
$3
MLD’s income
$100
$2
$55
Gaming promoters
$55
Gaming tax, special
levies, table premium
Gross Gaming Revenue
SJM
$40
MLD
$57
SJM
$3
Operating cost of VIP
roomsEBITDA
$15
$100
$6
Gaming agents/
revenue rebate
$36
Gaming tax, special
levies, table premium
Source: Company data, Credit Suisse estimates Source: Company data, Credit Suisse estimates
We believe the non-gaming segment will account for less than 15% of group EBITDA and
generate an EBITDA margin of 30-35%.
EBITDA to grow at 40% CAGR to HK$4,055 mn in 2017E
The Landmark Macau is a relatively mature property. Therefore, we expect its EBITDA to
grow steadily from HK$767 mn in 2012 to HK$1,348 mn in FY17E, implying a CAGR of
12% on the back of the organic growth of the Macau market, and operating leverage after
the renovation work to be completed by 2014.
MFW was loss-making during the track record period and we expect it to turn around in
2014 after the rolling out of phases of the redevelopment project, and for some new tables
to come in. After the completion of MFW redevelopment and the addition of 350 tables to
the site, we expect MFW to contribute an EBITDA of HK$2,707 mn in FY17E, i.e., the first
year of full operation.
Overall, we expect MLD’s EBITDA to grow from HK$750 mn in 2012 to HK$4,055 mn in
2017E, implying a CAGR of 40% over the five-year period, upon the completion of MFW
redevelopment.
Figure 47: MLD’s EBITDA projections by properties Figure 48: We expect EBITDA/table to trend up
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Landmark MFW
HK$mn
-
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
2010 2011 2012 2013E 2014E 2015E 2016E 2017E
EBITDA/table (HK$mn)
HK$mn
Source: Company data, Credit Suisse estimates Source: Credit Suisse estimates
Group EBITDA to grow at
40% CAGR during FY12-
FY17E
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 24
Figure 49: EBITDA mix—by segment Figure 50: EBITDA mix—by properties
88 123 111 171 189 331 553 732
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
High-roller - Mass-market -Slot Non-gaming EBITDA
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Landmark Macau MFW
Source: Credit Suisse estimates Source: Credit Suisse estimates
Net profits is set to grow at 44% CAGR to HK$3.3bn in FY17E
Below its EBITDA line, we mainly have depreciation and amortisation expenses. Note that
MLD’s gaming-related revenue is not subject to Complementary Tax in Macau during the
effective period of the service agreement, since the fees received under the Service
Agreement is derived from SJM’s gaming revenue, and SJM already pays special gaming
taxes, levies and gaming premiums to the Macau government out of its share of the gross
gaming income generated by the casinos.
Overall, we expect The Landmark Macau to continue generating profits going forward. On
the other hand, we project MFW will continue to be loss-making in 2013 and turn profitable
in 2014E with some new facilities and tables rolling out. Overall, we expect the group net
profit to increase from HK$535 mn in 2012 to HK$3,312 mn in 2017E, implying a CAGR of
44% during the five-year period, upon the completion of MFW redevelopment.
Figure 51: MLD’s net profit projection
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2010 2011 2012 2013E 2014E 2015E 2016E 2017E
Net profits
HK$mn
2012-2017E CAGR = 44%
Source: Company data, Credit Suisse estimates
We expect MLD to generate negative free cash flow in 2014E and 2015E mainly due to
the capex funding for the redevelopment project. However, after the eventual rollout and
ramp-up of new tables, we expect net free cash inflow since 2016E.
The gaming-related profits
of MLD are exempt from
Macau Complementary Tax
MFW to turnaround in
2014E
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 25
Initiating coverage with OUTPERFORM rating
Discounted 2017E EBITDA is adopted to better reflect the full potential of MFW
We expect MFW’s redevelopment project to be completed in 2016 and to operate at full
capacity only in 2017. For the first year of full operations of MFW in 2017, we expect MLD
to generate EBITDA of HK$4,055 mn, assuming the additional 350 gaming tables are
operational and the 1,263 hotel rooms at three new hotels are launched according to the
anticipated timeline. We believe the EBITDA generated in 2017E will better capture
MFW’s full potential post the redevelopment.
Therefore, for the purpose of determining the fair value range, we discounted 2017E
EBITDA to 2014E by using the weighted average cost of capital (WACC) of 11.7%, which,
in our view, captures the market and corporate risk as well as MLD’s debt structure.
Target multiple of 7x—based on 30% discount to SJM's FY14E EV/EBITDA
On the other hand, given the fact that MLD is operating the satellite casinos under SJM’s
concession licence, we believe SJM’s valuation would be an appropriate benchmark in
determining the valuation of MLD. A discount of 25% is applied on SJM’s 9.5x FY14E
EV/EBITDA in determining MLD’s target multiple of 7.1x to reflect the uncertainty
regarding the number and timing of the new tables.
We determined our target price at HK$3.13—implying 30% potential upside
Therefore, we set our target price at HK$3.13/share, which is determined by applying 7.1x
EV/ (FY17E EBITDA discounted to 2014 by using WACC of 11.7%). On actual EBITDA
basis, our target valuation implies 17.6x/10.7x/6.6x EV/EBITDA for 2014/15/16E.
Figure 52: We determined MLD's target price at HK$3.13
SJM 2014 EV/EBITDA (x) 9.5
Discount to SJM -25%
Target multiple (x) 7.1
Discounted FY2017 EBITDA to FY14 by using WACC of 11.7% (HK$mn) 2,911
Enterprise value (HK$mn) 20,738
Add: Net debt - FY2014E (HK$mn) -1,226
Equity value (HK$mn) 19,512
Outstanding shares (mn) 6,232.18
Target price (HK$/share) 3.13
Source: Credit Suisse estimates
The grant of first batch of new tables serves as a re-rating catalyst
According to our observation, the redevelopment of MFW has already kicked off. We
expect the management will start the discussion for new tables grant with DICJ shortly,
and the first batch of tables is likely to come online within the next 12 months. While the
market is cautious on the timeline of the new table grant, we believe the approval for new
tables could be a significant re-rating catalyst.
On the back of the attractive growth prospect of MLD and potential upside of 31%, we are
initiating coverage on MLD with an OUTPERFORM rating.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 26
Investment risks Reliance on SJM for all gaming-related revenue
MLD does not hold a concession or sub-concession to operate casino games in Macau,
and generates its gaming-related income largely from providing gaming services to SJM.
Therefore, a material dispute with SJM, any withdrawal of gaming tables allocated by SJM,
any material revision or early termination of the service agreements could materially and
adversely impact its business.
Gaming-related business may cease if SJM’s concession expires in 2020
SJM’s Concession Contract expires on 31 March 2020 and may not be renewed upon
expiry. Beginning April 2017, the Macau government may redeem SJM’s Concession
Contract by providing it with at least one year’s prior written notice. If the SJM Concession
is redeemed by the Macau government and SJM is unable to renew or extend its
concession, the service agreement will also terminate and MLD will cease to generate any
revenue from gaming services if it is unable to enter into a similar service agreement with
any of the other concessionaires or sub-concessionaires.
Even if the SJM Concession is renewed, there can be no assurance that SJM will renew
the service agreement on the same terms or at all. Further, there is no assurance that
MLD will be able to enter into a similar arrangement under the service agreement with any
of the other concessionaires or sub-concessionaires.
For the years ended 31 December 2010, 31 December 2011 and 31 December 2012, the
revenue generated from gaming services accounted for 71.2%, 70.2% and 66.7%,
respectively, of MLD’s total revenue for the same periods.
No assurance on DICJ approval regarding the application for additional 350 tables
The preliminary plans for expansion of the gaming-related business would require the
allotment of additional gaming tables across the properties, in particular the MFW
redevelopment project—bringing the total number of gaming tables to 500 from 146
gaming tables currently operating in Pharaoh’s Palace Casino and Babylon Casino.
DICJ has advised MLD and SJM in writing in December 2012 that the current limit of 3%
annual increase in table count as announced by Macau Government in September 2011
will not be an obstacle to the request for the application to operate up to 500 gaming
tables in total in the gaming premises located within The Landmark Macau and Macau
Fisherman’s Wharf, and DICJ may consider granting new gaming tables in stages in
accordance with the investment plan and market studies presented to the Macau
government in support of the application.
Having said that, there is no assurance that the DICJ will eventually approve the plans to
increase the number of gaming tables in the casinos. Without the new tables or if there is
a significant delay in the table grant as planned, MLD may not be able to generate
additional revenue from gaming services through new gaming tables as anticipated, and
may accordingly need to record an impairment loss in respect of the goodwill that arose
from the 2012 MFW Acquisition, the carrying amount of which was HK$682.0 mn as at 31
December 2012.
Moreover, various approvals, licences and permits would be required to operate the existing
hotel properties and those contemplated as part of the MFW Redevelopment Project, and the
loss of or failure to obtain or renew any or all of these approvals, licences and permits could
adversely affect the business, financial condition and results of operations.
Heavy reliance on SJM for
gaming-related income
SJM’s concession contract
is due to expire in 2020
If SJM’s concession is not
renewed, MLD may not be
able to continue the gaming-
related business
Getting the additional 350
tables is critical to the
gaming-related business
expansion
However, there is no
guarantee from DICJ
regarding the approval of
tables
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 27
Indirect exposure to credit risk on credit extended to VIP patrons by gaming
promoters
Under the Macau laws, only the concessionaires, sub-concessionaires and licensed
gaming promoters engaged by concessionaires and sub-concessionaires are permitted to
extend gaming credit to, and collect gaming debt from, the gaming patrons. That said,
MLD does not extend credit to VIP patrons gambling on its premises. However, MLD
provides a guarantee to SJM against any amount outstanding to SJM and any other
losses incurred by SJM resulting from a breach of the gaming promotion agreements by
any of the designated gaming promoters.
Limited control over the actions of gaming promoters but dependent on them for a
material portion of the revenue from gaming services
MLD does not hold, and is not required to hold, a gaming promoter licence under the
Gaming Promoters Regulation for the promotion of games of fortune and chance or other
games. Instead, certain designated gaming promoters conduct and operate gaming
promotion activities for the VIP rooms in The Landmark Macau.
The reputation and integrity of the parties with whom MLD engages in business activities,
in particular the gaming promoters responsible for gaming promotion for the VIP rooms,
are important to MLD’s own reputation and the ability to continue to operate in compliance
with the Macau Gaming Law and related regulations. Serious breaches or repeated
misconduct by the designated gaming promoters could result in the termination of SJM’s
concession. Yet, MLD has limited control over the actions of the designated gaming
promoters to assure their compliance of regulations.
Further equity/debt financing may be necessary to fund the redevelopment project
Management expects to fund the aggregate capex of HK$7.2 bn for the redevelopment of
the Landmark Macau and MFW by cash generates from operating activities and the
proceeds from the Global offering. However, following the reduction of proceeds from the
Global offering in July 2013, MLD may consider to fund the balance of the estimated
capex by equity/debt financing in the future.
MFW may not fully realise anticipated benefits from redevelopment and expansion
MFW Investment was loss-making during the track-record period and its growth potential,
even after redevelopment and expansion, may not materialise. Macau Fisherman’s Wharf
may not be able to attract a sufficient number of customers, including mass market players
and other visitors, in order to achieve performance goals.
The redevelopment and expansion of MFW could encounter significant delays and
cost increases
The redevelopment and expansion of Macau Fisherman’s Wharf may not proceed
according to design, schedule or budget. Currently, the MFW Redevelopment Project is
expected to offer, among other things, a new museum, entertainment attractions,
additional gaming areas, hotel accommodation, food and beverage outlets, retail space
and marina services. However, the development of the MFW Redevelopment Project is
still at a preliminary stage without any final plans regarding design, construction schedule
or budget. The features of the MFW Redevelopment Project may be subject to change.
Intense competition in Macau and elsewhere in Asia
MLD currently competes with the concessionaires and sub-concessionaires, as well as
other hotel and resort operators operating under service agreements with them. We
expect competition in Macau to increase as new hotels, casinos and entertainment
complex projects are completed in Cotai. The number of hotel rooms in Cotai is expected
to increase from ~13,000 in 2012 to ~25,000 by 2020. Outside Macau, MLD also
competes to some extent with casinos located in other countries, such as Malaysia, South
Korea, the Philippines, Cambodia, Australia, New Zealand and elsewhere in the world,
MLD has indirect exposure
to credit risk by
guaranteeing the gaming
promoters on their amount
outstanding to SJM
Limited control over gaming
promoters but dependant on
their gaming services for
revenue generation
Potential needs for further
equity/debt financing
The MFW redevelopment
project is still at a
preliminary stage and the
plan may be subject to
change
The competition of gaming
and entertainment within
Macau and Asia is fierce
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 28
including Las Vegas and Atlantic City in the United States. In addition, certain countries,
such as Singapore, have legalised casino gaming and others may do so in the future,
including Japan, Taiwan and Thailand.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 29
Appendix 1: Key financial data Figure 53: Profit and loss statement
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Gaming service income
- High-roller 88 123 111 171 189 1,237 2,814 4,073
- Mass-market 755 918 984 1,166 1,429 2,360 3,815 4,741
-Slot 25 27 16 29 31 37 44 49
Sub-total 867 1,068 1,111 1,366 1,649 3,634 6,673 8,863
Non-gaming revenue 228 278 389 455 540 761 1,087 1,402
Total revenue 1,095 1,346 1,500 1,822 2,189 4,395 7,761 10,265
Gross profits 678 927 836 1,027 1,196 2,166 3,620 4,824
Other income 2 3 34 22 23 24 25 26
Marketing and promotional expenses -28 -31 -46 -55 -61 -132 -217 -267
Staff cost (admin) -83 -119 -118 -148 -178 -213 -256 -294
Others -54 -70 -103 -129 -28 -305 -676 -921
Operating profits 515 710 603 718 952 1,540 2,496 3,368
Net interest expenses/ income -18 -50 -61 -61 -61 -76 -77 -57
Exceptional 0 -12 -12 -76 0 0 0 0
Profits before tax 497 648 531 581 891 1,464 2,419 3,312
Taxation 0 0 4 0 0 0 0 0
Net profit 497 648 535 581 891 1,464 2,419 3,312
Source: Company data, Credit Suisse estimates
Figure 54: Reconciliation of adjusted EBITDA
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Operating profits 515 710 603 718 952 1,540 2,496 3,368
Add:
Depreciation and Amortization 51 52 104 119 178 357 591 637
Share base payment - 35 8 - - - - -
Release of prepaid lease payments 12 12 35 50 50 50 50 50
Adjusted EBITDA 578 809 750 887 1,180 1,947 3,137 4,055
Source: Company data, Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 30
Figure 55: Balance sheet
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Assets
Cash 31 72 112 974 1,178 1,095 2,468 6,188
Inventories 5 5 28 41 50 66 90 105
Accounts receivables 356 415 467 536 657 879 1,552 1,848
Other current assets 655 1,403 2,300 71 71 71 71 71
Net fixed assets 633 685 2,284 3,794 5,585 7,827 8,576 8,145
Other non-current assets 847 781 2,730 2,680 2,631 2,581 2,531 2,481
Total assets 2,528 3,362 7,921 8,096 10,171 12,517 15,287 18,837
Liabilities
Short term debt 171 272 334 356 356 356 356 356
Accounts payables 3,240 357 660 911 1,094 1,978 2,328 2,566
Long term debt 557 1,456 1,405 1,049 2,049 2,049 2,049 2,049
Other non current liability 0 0 198 198 198 198 198 198
Total liabilities 3,968 2,085 2,597 2,514 3,697 4,580 4,931 5,169
Shareholders' equities
Share Capital 338 339 523 623 623 623 623 623
Reserves -1,815 885 1,406 -460 431 1,894 4,313 7,625
Share Premium 36 52 3,396 5,420 5,420 5,420 5,420 5,420
Total equities -1,441 1,276 5,324 5,583 6,474 7,937 10,356 13,668
Source: Company data, Credit Suisse estimates
Figure 56: Cash flow statement
Year end Dec 31 (HK$ mn) 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Pre-tax profit 497 648 531 581 891 1,464 2,419 3,312
Taxes paid 0 0 0 0 0 0 0 0
Depreciation & amortisation 51 52 104 119 178 357 591 637
Share base payment 0 35 8 0 0 0 0 0
Release of prepaid lease payments 12 12 35 50 50 50 50 50
Exceptional items and others 0 0 -6 123 0 0 0 0
Interest (income)/expense 18 50 61 61 61 76 77 57
Gross cash flow 578 798 733 811 1,180 1,947 3,137 4,055
Net capex -23 -17 -76 -1,629 -1,969 -2,599 -1,340 -205
Net change in working capital -373 -2,691 -608 -49 55 645 -346 -73
Free cash flow 183 -1,910 49 -867 -734 -7 1,450 3,777
Dividends paid 0 0 -5 0 0 0 0 0
Other fund raising 0 0 183 0 0 0 0 0
Others -18 951 -197 2,063 -61 -76 -77 -57
Net cash flow 165 -960 31 1,195 -796 -83 1,373 3,720
Source: Company data, Credit Suisse estimates
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 31
Appendix II: Management team As a gaming service provider in Macau, we believe MLD’s knowledge and relationship with
customers, junkets, the Macau government and SJM, the concession licence holder of
casinos at MLD’s properties, are important to the success and continuity of the business.
Most management team members have been working in Macau gaming markets for over ten
years and have established strong relationships with all the parties involved in the game.
With the redevelopment of MFW in the pipeline, we believe the execution of the project is
also critical to its success and eventually the grant of gaming tables from DICJ. MLD has
recently brought in several specialists to build and manage the projects as well as gain
access to financial resources to fund the projects.
David Chow, Co-Chairman and Chief Executive Officer
Mr Chow has more than 30 years of experience in the gaming, gaming promotion,
entertainment and hospitality industries prior to founding MLD. Mr Chow has been actively
involved in community service and has been appointed a member of various tourism-
related associations. Moreover, he has owned and managed the award-winning five-star
Legendale Hotel Beijing since 2007.
Furthermore, he was previously elected as a legislator of the Macau government and was
recently appointed a member of the 12th National Committee of Chinese People’s Political
Consultative Conference in February 2013.
Madam Lam Fong Ngo, Vice-chairman & Executive Director
Madam Lam has more than 30 years of experience in the Macau gaming industry and has
worked for STDM since the 1980s. She has served as a member of the Macau Chief
Executive Election Committee in 2004 and 2009 and was conferred the title of honorary
citizen of Guangzhou in 1996 by the Guangzhou People’s Congress.
Sheldon Trainor, Executive Director
Mr Trainor. has more than 20 years of experience in financial advisory services and
served a number of leading investment banks. He served as a managing director in the
investment banking division of Morgan Stanley Asia Pacific Holding Ltd. and worked at
Bank of America Merrill Lynch between 2005 and 2009 as a managing director. He
founded PacBridge Capital Partners (HK) Limited in 2009 which is primarily responsible for
the execution of both corporate advisory and principal investment transactions.
Carl Tong, Co-chairman & Non-executive Director
Mr Tong became an associate of the Hong Kong Institute of Certified Public Accountants
in 1981 and an associate of the Institute of Chartered Accountants in England and Wales
in 1980. He possesses extensive experience in strategy, planning, operations, finance
management, investment and risk management in Hong Kong, Singapore and US. He is a
former independence non-executive director of eSun Holdings and non-executive director
of Crocodile Garments. He is now a director of UNIR (HK) Management Limited, a family
office that oversees investments of Ms Ina Chan.
Peter Meacock, EVP, Head of Projects
Mr Meacock has been involved with MLD since 2002 and has over 40 years of
professional experience in architecture and engineering projects and construction
development in Europe, the Middle East and the Asian region. He was the founder of
Legend Tec International Project Management in 2006.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 32
Companies Mentioned (Price as of 09-Aug-2013)
Galaxy Entertainment Group Ltd (0027.HK, HK$41.25) MGM China (2282.HK, HK$22.3) Macau Legend Development Limited (1680.HK, HK$2.39, OUTPERFORM[V], TP HK$3.13) Melco Crown Entertainment-ADR (MPEL.OQ, $26.4) SJM Holdings Ltd. (0880.HK, HK$19.92) Sands China (1928.HK, HK$42.25) Wynn Macau (1128.HK, HK$21.0)
Disclosure Appendix
Important Global Disclosures
Isis Wong and Kenny Lau, CFA, each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
The analyst(s) responsible for preparing this research report received Compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities
As of December 10, 2012 Analysts’ stock rating are defined as follows:
Outperform (O) : The stock’s total return is expected to outperform the relevant benchmark*over the next 12 months.
Neutral (N) : The stock’s total return is expected to be in line with the relevant benchmark* over the next 12 months.
Underperform (U) : The stock’s total return is expected to underperform the relevant benchmark* over the next 12 months.
*Relevant benchmark by region: As of 10th December 2012, Japanese ratings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. As of 2nd October 2012, U.S. and Canadian as well as European ra tings are based on a stock’s total return relative to the analyst's coverage universe which consists of all companies covered by the analyst within the relevant sector, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. For Latin American and non-Japan Asia stocks, ratings are based on a stock’s total return relative to the average total return of the relevant country or regional benchmark; Australia, New Zealand are, and prior to 2nd October 2012 U.S. and Canadian ratings were based on (1) a stock’s absolute total return potential to its current share price and (2) the relative attractiveness of a stock’s total return potential within an analyst’s coverage universe. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 10-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +10-15% and -10-15% levels in the Neutral stock rating definition, respectively. Prior to 10th December 2012, Japanese ratings were based on a stock’s total return relative to the average total return of the relevant country or regional benchmark .
Restricted (R) : In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances.
Volatility Indicator [V] : A stock is defined as volatile if the stock price has moved up or down by 20% or more in a month in at least 8 of the past 24 months or the analyst expects significant volatility going forward.
Analysts’ sector weightings are distinct from analysts’ stock ratings and are based on the analyst’s expectations for the fundamentals and/or valuation of the sector* relative to the group’s historic fundamentals and/or valuation:
Overweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is favourable over the next 12 months.
Market Weight : The analyst’s expectation for the sector’s fundamentals and/or valuation is neutral over the next 12 months.
Underweight : The analyst’s expectation for the sector’s fundamentals and/or valuation is cautious over the next 12 months.
*An analyst’s coverage sector consists of all companies covered by the analyst within the relevant sector. An analyst may cover multiple sectors.
Credit Suisse's distribution of stock ratings (and banking clients) is:
Global Ratings Distribution
Rating Versus universe (%) Of which banking clients (%)
Outperform/Buy* 42% (53% banking clients)
Neutral/Hold* 40% (50% banking clients)
Underperform/Sell* 15% (40% banking clients)
Restricted 3%
*For purposes of the NYSE and NASD ratings distribution disclosure requirements, our stock ratings of Outperform, Neutral, an d Underperform most closely correspond to Buy, Hold, and Sell, respectively; however, the meanings are not the same, as our stock ratings are determined on a relative basis. (Please refer to definitions above.) An investor's decision to buy or sell a security should be based on investment objectives, current holdin gs, and other individual factors.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 33
Credit Suisse’s policy is to update research reports as it deems appropriate, based on developments with the subject company, the sector or the market that may have a material impact on the research views or opinions stated herein.
Credit Suisse's policy is only to publish investment research that is impartial, independent, clear, fair and not misleading. For more detail please refer to Credit Suisse's Policies for Managing Conflicts of Interest in connection with Investment Research: http://www.csfb.com/research and analytics/disclaimer/managing_conflicts_disclaimer.html
Credit Suisse does not provide any tax advice. Any statement herein regarding any US federal tax is not intended or written to be used, and cannot be used, by any taxpayer for the purposes of avoiding any penalties.
Price Target: (12 months) for Macau Legend Development Limited (1680.HK)
Method: We determined our target price by applying 7x EV/EBITDA on the 2014's PV of the FY17E EBITDA, which is the first full year of operations, implying 10.7x FY15E EV/EBITDA, which is comparable to the peers valuation.
Risk: Key risk to our target price includes: 1) Headwinds to macro economy in Mainland China; 2) significant slowdown of visitation to Maca; 3) significant delay or reducing number of the table grant; and 4) significant delay in the redevelopment project of Macau's Fisherman Wharf
Please refer to the firm's disclosure website at www.credit-suisse.com/researchdisclosures for the definitions of abbreviations typically used in the target price method and risk sections.
See the Companies Mentioned section for full company names
The subject company (1680.HK) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse.
Credit Suisse provided investment banking services to the subject company (1680.HK) within the past 12 months.
Credit Suisse has managed or co-managed a public offering of securities for the subject company (1680.HK) within the past 12 months.
Credit Suisse has received investment banking related compensation from the subject company (1680.HK) within the past 12 months
Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (1680.HK) within the next 3 months.
Important Regional Disclosures
Singapore recipients should contact Credit Suisse AG, Singapore Branch for any matters arising from this research report.
The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (1680.HK) within the past 12 months
Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares.
Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report.
For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit http://www.csfb.com/legal_terms/canada_research_policy.shtml.
As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report.
Principal is not guaranteed in the case of equities because equity prices are variable.
Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
To the extent this is a report authored in whole or in part by a non-U.S. analyst and is made available in the U.S., the following are important disclosures regarding any non-U.S. analyst contributors: The non-U.S. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-U.S. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Credit Suisse (Hong Kong) Limited .............................................................................................................................. Isis Wong ; Kenny Lau, CFA
For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at www.credit-suisse.com/researchdisclosures or call +1 (877) 291-2683.
12 August 2013
Macau Legend Development Limited (1680.HK / 1680 HK) 34
References in this report to Credit Suisse include all of the subsidiaries and affiliates of Credit Suisse operating under its investment banking division. For more information on our structure, please use the following link: https://www.credit-suisse.com/who_we_are/en/This report may contain material that is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject Credit Suisse AG or its affiliates ("CS") to any registration or licensing requirement within such jurisdiction. All material presented in this report, unless specifically indicated otherwise, is under copyright to CS. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of CS. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of CS or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. CS may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. CS will not treat recipients of this report as its customers by virtue of their receiving this report. The investments and services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice, or a representation that any investment or strategy is suitable or appropriate to your individual circumstances, or otherwise constitutes a personal recommendation to you. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. Information and opinions presented in this report have been obtained or derived from sources believed by CS to be reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that such liability arises under specific statutes or regulations applicable to CS. This report is not to be relied upon in substitution for the exercise of independent judgment. CS may have issued, and may in the future issue, other communications that are inconsistent with, and reach different conclusions from, the information presented in this report. Those communications reflect the different assumptions, views and analytical methods of the analysts who prepared them and CS is under no obligation to ensure that such other communications are brought to the attention of any recipient of this report. CS may, to the extent permitted by law, participate or invest in financing transactions with the issuer(s) of the securities referred to in this report, perform services for or solicit business from such issuers, and/or have a position or holding, or other material interest, or effect transactions, in such securities or options thereon, or other investments related thereto. In addition, it may make markets in the securities mentioned in the material presented in this report. CS may have, within the last three years, served as manager or co-manager of a public offering of securities for, or currently may make a primary market in issues of, any or all of the entities mentioned in this report or may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investment concerned or a related investment. Additional information is, subject to duties of confidentiality, available on request. Some investments referred to in this report will be offered solely by a single entity and in the case of some investments solely by CS, or an associate of CS or CS may be the only market maker in such investments. Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Information, opinions and estimates contained in this report reflect a judgment at its original date of publication by CS and are subject to change without notice. The price, value of and income from any of the securities or financial instruments mentioned in this report can fall as well as rise. The value of securities and financial instruments is subject to exchange rate fluctuation that may have a positive or adverse effect on the price or income of such securities or financial instruments. Investors in securities such as ADR's, the values of which are influenced by currency volatility, effectively assume this risk. Structured securities are complex instruments, typically involve a high degree of risk and are intended for sale only to sophisticated investors who are capable of understanding and assuming the risks involved. The market value of any structured security may be affected by changes in economic, financial and political factors (including, but not limited to, spot and forward interest and exchange rates), time to maturity, market conditions and volatility, and the credit quality of any issuer or reference issuer. Any investor interested in purchasing a structured product should conduct their own investigation and analysis of the product and consult with their own professional advisers as to the risks involved in making such a purchase. Some investments discussed in this report may have a high level of volatility. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realised. Those losses may equal your original investment. Indeed, in the case of some investments the potential losses may exceed the amount of initial investment and, in such circumstances, you may be required to pay more money to support those losses. Income yields from investments may fluctuate and, in consequence, initial capital paid to make the investment may be used as part of that income yield. Some investments may not be readily realisable and it may be difficult to sell or realise those investments, similarly it may prove difficult for you to obtain reliable information about the value, or risks, to which such an investment is exposed. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of CS, CS has not reviewed any such site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS's own website material) is provided solely for your convenience and information and the content of any such website does not in any way form part of this document. Accessing such website or following such link through this report or CS's website shall be at your own risk. This report is issued and distributed in Europe (except Switzerland) by Credit Suisse Securities (Europe) Limited, One Cabot Square, London E14 4QJ, England, which is authorised by the Prudential Regulation Authority ("PRA") and regulated by the Financial Conduct Authority ("FCA") and the PRA. This report is being distributed in Germany by Credit Suisse Securities (Europe) Limited Niederlassung Frankfurt am Main regulated by the Bundesanstalt fuer Finanzdienstleistungsaufsicht ("BaFin"). This report is being distributed in the United States and Canada by Credit Suisse Securities (USA) LLC; in Switzerland by Credit Suisse AG; in Brazil by Banco de Investimentos Credit Suisse (Brasil) S.A or its affiliates; in Mexico by Banco Credit Suisse (México), S.A. (transactions related to the securities mentioned in this report will only be effected in compliance with applicable regulation); in Japan by Credit Suisse Securities (Japan) Limited, Financial Instruments Firm, Director-General of Kanto Local Finance Bureau (Kinsho) No. 66, a member of Japan Securities Dealers Association, The Financial Futures Association of Japan, Japan Investment Advisers Association, Type II Financial Instruments Firms Association; elsewhere in Asia/ Pacific by whichever of the following is the appropriately authorised entity in the relevant jurisdiction: Credit Suisse (Hong Kong) Limited, Credit Suisse Equities (Australia) Limited, Credit Suisse Securities (Thailand) Limited, having registered address at 990 Abdulrahim Place, 27 Floor, Unit 2701, Rama IV Road, Silom, Bangrak, Bangkok 10500, Thailand, Tel. +66 2614 6000, Credit Suisse Securities (Malaysia) Sdn Bhd, Credit Suisse AG, Singapore Branch, Credit Suisse Securities (India) Private Limited regulated by the Securities and Exchange Board of India (registration Nos. INB230970637; INF230970637; INB010970631; INF010970631), having registered address at 9th Floor, Ceejay House, Dr.A.B. Road, Worli, Mumbai - 18, India, T- +91-22 6777 3777, Credit Suisse Securities (Europe) Limited, Seoul Branch, Credit Suisse AG, Taipei Securities Branch, PT Credit Suisse Securities Indonesia, Credit Suisse Securities (Philippines ) Inc., and elsewhere in the world by the relevant authorised affiliate of the above. Research on Taiwanese securities produced by Credit Suisse AG, Taipei Securities Branch has been prepared by a registered Senior Business Person. Research provided to residents of Malaysia is authorised by the Head of Research for Credit Suisse Securities (Malaysia) Sdn Bhd, to whom they should direct any queries on +603 2723 2020. This report has been prepared and issued for distribution in Singapore to institutional investors, accredited investors and expert investors (each as defined under the Financial Advisers Regulations) only, and is also distributed by Credit Suisse AG, Singapore branch to overseas investors (as defined under the Financial Advisers Regulations). By virtue of your status as an institutional investor, accredited investor, expert investor or overseas investor, Credit Suisse AG, Singapore branch is exempted from complying with certain compliance requirements under the Financial Advisers Act, Chapter 110 of Singapore (the "FAA"), the Financial Advisers Regulations and the relevant Notices and Guidelines issued thereunder, in respect of any financial advisory service which Credit Suisse AG, Singapore branch may provide to you. This research may not conform to Canadian disclosure requirements. In jurisdictions where CS is not already registered or licensed to trade in securities, transactions will only be effected in accordance with applicable securities legislation, which will vary from jurisdiction to jurisdiction and may require that the trade be made in accordance with applicable exemptions from registration or licensing requirements. Non-U.S. customers wishing to effect a transaction should contact a CS entity in their local jurisdiction unless governing law permits otherwise. U.S. customers wishing to effect a transaction should do so only by contacting a representative at Credit Suisse Securities (USA) LLC in the U.S. Please note that this research was originally prepared and issued by CS for distribution to their market professional and institutional investor customers. Recipients who are not market professional or institutional investor customers of CS should seek the advice of their independent financial advisor prior to taking any investment decision based on this report or for any necessary explanation of its contents. This research may relate to investments or services of a person outside of the UK or to other matters which are not authorised by the PRA and regulated by the FCA and the PRA or in respect of which the protections of the PRA and FCA for private customers and/or the UK compensation scheme may not be available, and further details as to where this may be the case are available upon request in respect of this report. CS may provide various services to US municipal entities or obligated persons ("municipalities"), including suggesting individual transactions or trades and entering into such transactions. Any services CS provides to municipalities are not viewed as "advice" within the meaning of Section 975 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. CS is providing any such services and related information solely on an arm's length basis and not as an advisor or fiduciary to the municipality. In connection with the provision of the any such services, there is no agreement, direct or indirect, between any municipality (including the officials, management, employees or agents thereof) and CS for CS to provide advice to the municipality. Municipalities should consult with their financial, accounting and legal advisors regarding any such services provided by CS. In addition, CS is not acting for direct or indirect compensation to solicit the municipality on behalf of an unaffiliated broker, dealer, municipal securities dealer, municipal advisor, or investment adviser for the purpose of obtaining or retaining an engagement by the municipality for or in connection with Municipal Financial Products, the issuance of municipal securities, or of an investment adviser to provide investment advisory services to or on behalf of the municipality. If this report is being distributed by a financial institution other than Credit Suisse AG, or its affiliates, that financial institution is solely responsible for distribution. Clients of that institution should contact that institution to effect a transaction in the securities mentioned in this report or require further information. This report does not constitute investment advice by Credit Suisse to the clients of the distributing financial institution, and neither Credit Suisse AG, its affiliates, and their respective officers, directors and employees accept any liability whatsoever for any direct or consequential loss arising from their use of this report or its content. Principal is not guaranteed. Commission is the commission rate or the amount agreed with a customer when setting up an account or at any time after that.
Copyright © 2013 CREDIT SUISSE AG and/or its affiliates. All rights reserved.
Investment principal on bonds can be eroded depending on sale price or market price. In addition, there are bonds on which investment principal can be eroded due to changes in redemption amounts. Care is required when investing in such instruments.
When you purchase non-listed Japanese fixed income securities (Japanese government bonds, Japanese municipal bonds, Japanese government guaranteed bonds, Japanese corporate bonds) from CS as a seller, you will be requested to pay the purchase price only.
CS0678.doc
Top Related