Company s Gaming Capacity to Double in Early 2016, Buy

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1 : Wynn Macau Limited (01128 HK) Noah Hudson 公 司 报 告 : 永 利 澳 门 有 限 公 司 (01128 HK) [email protected] Company s Gaming Capacity to Double in Early 2016, Buy 公 司 的 博 彩 规 模 将 于 2016 年 初 翻 倍, 买 入 GTJA Research 国 泰 君 安 研 究 We initiate coverage on Wynn Macau ( WM or the Company ). WM s first casino, also named Wynn Macau, opened on September 6, Encore, an expansion of the Wynn Macau property, opened in April WM is now constructing its US$4.0 billion Wynn Palace in Cotai that is expected to open by Feb In 2013, 94.3% of revenue was from the casino, and WM had 12.4% / 12.1% share of the VIP / Mass markets. We forecast WM 2014 and 2015 casino revenue growth of 16.3% and 5.6%, respectively. We think WM will be able to hold its market share in the VIP and Mass Market segments in 2014, but its casino revenue growth will slow down in 2015 as competitors introduce new casinos. We forecast adjusted EBITDA of HK$8.966 billion, HK$ billion and HK$ billion, respectively, representing growth of 15.9%, 15.4% and 6.2%. We expect a relatively stable EBITDA margin going forward. We forecast EPS of HK$1.465, HK$1.662 and HK$1.750, respectively, representing 12.1% CAGR. Buy, with target price of HK$41.00, which is equivalent to 21.7x 2014 EV/EBITDA and 24.7x 2014 PE. Wynn Palace is scheduled to open by February 2016 and will double the Company s gaming capacity. We think WM s current valuation does not sufficiently reflect Wynn Palace s value. 我 们 首 次 覆 盖 永 利 澳 门 有 限 公 司 ( WM 或 公 司 ) WM 的 第 一 个 赌 场, 叫 永 利 澳 门, 在 2006 年 9 月 6 日 开 业 万 利 是 永 利 澳 门 赌 场 的 扩 展, 在 2010 年 4 月 开 业 在 路 氹, WM 正 在 建 设 投 资 额 40 亿 美 元 的 永 利 皇 宮, 预 期 于 2016 年 2 月 开 业 在 2013,WM 94.3% 的 收 入 来 自 赌 场, 而 WM 在 贵 宾 和 中 场 市 场 分 别 占 12.4% 和 12.1% 的 市 场 份 额 我 们 预 期 WM 的 2014 年 和 2015 年 赌 场 收 入 分 别 增 长 16.3% 和 5.6% 我 们 认 为 在 2014 年 WM 能 够 保 持 其 贵 宾 和 中 场 市 场 份 额 因 为 在 2015 年 竞 争 对 手 的 新 赌 场 将 开 业, 我 们 预 期 WM 的 赌 场 收 入 增 长 放 缓 我 们 分 别 预 期 2013 年 至 2015 年 经 调 整 EBITDA 为 亿 港 元 亿 港 元 及 亿 港 元, 相 当 于 15.9% 15.4% 和 6.2% 的 增 长 我 们 认 为 EBITDA 利 润 率 能 维 持 在 比 较 稳 定 的 水 平 我 们 分 别 预 期 2013 年 至 2015 年 每 股 净 利 为 港 元 港 元 及 港 元, 相 当 于 12.1% 的 年 复 合 增 长 率 Rating: Buy Initial 评 级 : 买 入 ( 首 次 研 究 ) 6-18m TP 目 标 价 : HK$41.00 Share price 股 价 : Stock performance 股 价 表 现 (10.0) % return HK$ (20.0) Feb-13 Apr-13 Jun-13 Jul-13 Sep-13 Oct-13 Dec-13 Feb-14 Change in Share Price 股 价 变 动 HSI Wynn Macau 1 M 1 个 月 3 M 3 个 月 1 Y 1 年 Abs. % 绝 对 变 动 % Rel. % to HS index 相 对 恒 指 变 动 % Avg. share price(hk$) 平 均 股 价 ( 港 元 ) Source: Bloomberg, Guotai Junan International. 买 入, 目 标 价 为 港 元, 相 当 于 21.7 倍 2014 年 EV/EBITDA 和 24.7 倍 2014 年 市 盈 率 预 期 永 利 皇 宮 在 2016 年 2 月 开 业, 将 令 公 司 博 彩 规 模 翻 一 番 我 们 认 为 WM 目 前 估 值 不 能 充 分 反 映 永 利 皇 宮 的 价 值 Year End 年 结 Turnover 收 入 Net Profit 股 东 净 利 EPS 每 股 净 利 EPS 每 股 净 利 变 动 PER 市 盈 率 BPS 每 股 净 资 产 PBR 市 净 率 DPS 每 股 股 息 Yield 股 息 率 ROE 净 资 产 收 益 率 12/31 (HKD m) (HKD m) (HKD) ( %) (x) (HKD) (x) (HKD) (%) (%) 2011A 29,498 5, (98.7) A 28,452 6, F 31,344 7, F 36,351 8, F 38,483 9, Shares in issue (m) 总 股 数 (m) 5,187.6 Major shareholder 大 股 东 Wynn Resorts (WYNN US) 72.3% Market cap. (HK$ m) 市 值 (HK$ m) 185,714.3 Free float (%) 自 由 流 通 比 率 (%) month average vol. 3 个 月 平 均 成 交 股 数 ( 000) 7,388.5 FY14 Net gearing (%) FY14 净 负 债 / 股 东 资 金 (%) Weeks high/low (HK$) 52 周 高 / 低 / FY14 Est. NAV (HK$) FY14 每 股 估 值 ( 港 元 ) 48.2 See the last page for disclaimer Page 1 of 34

2 GLOBAL GAMING... 3 MACAU CASINO INDUSTRY... 6 History & Overview... 6 Visitors Entry Points VIP vs. Mass Market Gross Gaming Revenue ( GGR ) COMPANY Company Background Financial Analysis Valuation RISKS FINANCIAL STATEMENTS & RATIOS APPENDIX Glossary Revenue Model, Annual Revenue Model, Quarterly See the last page for disclaimer Page 2 of 34

3 GLOBAL GAMING Macau s 2013 gross gaming revenue increased by 18.6% YoY to US$45.2 billion, but is still just a fraction of gaming revenue in the U.S. Macau is by far the largest gaming jurisdiction in Asia, with Singapore a distant second. Gross gaming revenue in Macau grew at 28.9% CAGR from 2002 to 2013, when Macau gaming revenue was over 7x that of the Las Vegas strip, whose gaming revenue grew at just 1.5% CAGR from Macau s gaming revenue was equivalent to 59% of total U.S. gaming revenue in 2012, implying further growth potential. To get an idea of growth potential, we look at total gaming revenues in the U.S. and Macau divided by the total populations of the U.S. and the PRC. We find that in 2012, in the U.S. there was US$204 in gaming revenue generated per U.S. person; in Macau, there was US$90 in gaming revenue per PRC person, or 44% of the U.S figure. Of course this is not an apples to apples comparison since the U.S. has local casinos throughout the country (compared with PRC where casinos are legal only in Macau) and higher disposable incomes per capita. Still, we think it is an indicator that there is further growth potential in Macau s gaming sector, especially when also considering increasing disposable Chinese incomes, new casinos driving further demand and improving infrastructure allowing easier travel from PRC to Macau. Casinos are limited in Asia as governments believe they can bring many social ills and that Asians in particular are highly susceptible to gambling addiction. For example, South Korea, Nepal, Cambodia and Vietnam all have casinos but entry is generally (in South Korea) or totally allowed to foreigners only. Asia s largest gaming destinations are Macau (US$38.1 billion 2012 gaming revenue), Singapore (US$4.2 billion 2012 gaming revenue), Australia (~US$3.4 billion 2012E gaming revenue), South Korea (~US$2.6 billion 2012E gaming revenue), Philippines (~US$1 billion 2012E gaming revenue), Malaysia (~US$942 million 2012E gaming revenue) and Vietnam (~US$78 million 2012E gaming revenue). Other Asian countries with casinos include Laos, Cambodia, North Korea, Nepal, and Burma. We think that the extent to which neighboring jurisdictions can compete with Macau for PR China gamers depends on 1) Distance from PR China, 2) Strictness of visa requirements for PR China citizens, and 3) Cultural compatibility of casinos, including language considerations. Figure-1: Global Gaming Revenues (Select Regions) Macau Singapore U.S. All Markets Las Vegas Strip Figure-2: 2012 Asian Jurisdictions Gaming Revenue & Percent of Total* US$ Billion %of total Singapore 4.2 8% Australia & New Zealand 3.8 7% Macau % Malaysia 0.9 2% Vietnam 0.8 1% South Korea 2.6 5% Philippines 2.0 4% Source: Gaming Inspection and Coordination Bureau Macao SAR, Bloomberg. Source: Gaming Inspection and Coordination Bureau Macao SAR, PWC 2011 Global Gaming Outlook to 2015, MacauBusiness.com. Note: Figures for Australia, Malaysia, South Korea, Vietnam & Philippines are estimates. See the last page for disclaimer Page 3 of 34

4 Gaming in Singapore began in 2010, when it opened its first two casinos, Las Vegas Sands (LVS US)'s Marina Bay Sands and Genting Group (3182 MYX)'s Resorts World Sentosa. Despite the competition, in 2010, Macau s gross gaming revenue surged a record 58%, and grew another 42% in We think Singapore, which is a four hour flight from Guangzhou, China, will have a limited impact on drawing PR China gamblers as long as it maintains its rigid visa policies for PR passport holders. For example, PR nationals applying for a Singapore tourist visa must have a local Singapore resident who must provide a letter of introduction. Vietnam s first casino resort, US$500 mn The Grand Ho Tram Strip, opened in July The property is located on a beachfront location about 130 km (about ~2 hours drive) south of Ho Chi Minh City s international airport. The casino resort has 35 mass-market tables and six VIP tables. It has 614 gaming machine positions and a hotel with 541 five-star rooms. The US$500 million property is owned by Ho Tram Project Co, a Vietnamese subsidiary of Asian Coast Development (Canada) Ltd based in Vancouver. The Philippines first large scale casino complex was opened in The Philippines, which has had a history of gaming since the 1800 s when it was a Spanish colony, didn t open its first large scale casino complex (Resorts World Manila) until Cristino Naguiat, the chairman and chief executive of the state-owned Philippine Amusement and Gaming Corp. ( Pagcor ) estimates that the country s gaming revenue at US$2.5 billion in 2013, up from US$2 billion in US$4 billion Entertainment City in Manila Bay, Philippines, to be completed in Major developers including Melco Crown Entertainment, Universal Entertainment, Genting Bhd and Global Gaming Asset Management are developing a US$4 billion casino resort destination in Philippines Manila Bay called Entertainment City. Entertainment City s first resort, the US$1.2 billion Solaire Resort and Casino, opened on March 16, Real estate consulting firm CBRE Philippines predicts that the Philippines gross gaming revenue will increase to US$3 billion by 2015 once the Entertainment City is completed. Tax rates on gaming revenues, which are still being determined by the Philippines government, could be 10% and 22% for mass and VIP markets, respectively, with an additional corporate income tax rate of 30%, compared to Macau, where the effective tax rate on gaming revenue is 39% and casinos are exempt from corporate income tax. Entertainment City is specifically aiming to bring in high-rollers from China via cooperation with VIP gaming operators/junkets. Manila is a 2 hour and 20 minute flight from Guangzhou and a five hour flight from Beijing. Visa requirements for PR China nationals are relatively simple, and even allow PRC passport holders entering with group tours to obtain visas upon arrival. Taiwan s Matsu Islands (~20 km/~30 minute ferry ride from mainland China) could become a major casino destination as early as 2017, according to the island s minister of Transportation and Communications, Yeh Kuang-shih. In 2009, legislation was passed allowing casinos to be built on Taiwanese islands, pending approval by any such island. In July 2012, Matsu, a chain of islands of Taiwan, passed a referendum allowing casinos on their islands. The Matsu Islands, located in the Taiwan Strait, are actually closer (~20 km) to mainland China than to Taiwan mainland (~140 km) and would be a very convenient destination for gamers from PR China s Southern regions as the islands are just a ~30 minute ferry ride from Fujian province in mainland China. Additionally, the Taiwanese government has proposed a 13% gaming tax, which would be a competitive advantage compared to Macau which has a 39% effective gaming tax rate. Taiwan still requires a bill stipulating regulations for the operation of casinos before it can invite bids to build and run casinos. However, a political stalemate is threatening to stall the bill s passage into law. Also, it remains to be seen what Beijing s stance would be on granting mainlanders visas to go to Taiwan for gambling. See the last page for disclaimer Page 4 of 34

5 US$8 billion casino resort planned for Taiwanese Matsu island. Weidner Resorts, led by former Les Vegas Sands president and COO William P. Weidner, has proposed to develop a US$8 billion casino resort in the Taiwanese Matsu island of Beigan. The casino resort development would include a number of 30 story hotels with 26k rooms, rivaling the hotel capacity of Macau. Investment would include US$2.5 billion for infrastructure development, including upgrading Beigan s airport, construction of a bridge connecting Matsu s Beigan and Nangan islands, and building a ferry harbor and a yacht terminal. Weidner has also signed a memorandum of understanding with Hong Kong ferry operator Chu Kong Passenger Transport in December 2012 for ferry service between Matsu and Fuzhou, the capital of China s Fujian province which has over 7 million people. Weidner Resorts Chairman and CEO William P. Weidner was president and COO of Las Vegas Sands from and was a key person involved in the opening of Sands Macau in 2004, the Venetian Macau in 2007 and the Four Seasons in South Korea has ambitious plans to develop 8-City as a casino destination, but it s still in the funding stage and won t start operating till 2020, if at all. South Korea s west coast city of Incheon, which is a 2 hour flight from Beijing, has drawn up plans to develop the current Yongyu-Muui fishing village into a US$264 billion city-complex called 8-City, which would cover 80 square kilometers, about three times larger than Macau. 8-City s leisure and gaming destinations would specifically target Chinese and Japanese gamers and tourists. However, the project is still in the funding phase and may or may not proceed as planned. First stage development is not expected to be completed until Japanese parliament presented a bill in December 2013 that would legalize casinos, if passed. Foreign companies have said they intend to spend billions of dollars on building casino-resorts in Japan if and when casinos are legalised. Among them are Wynn Resorts Ltd, Las Vegas Sands Corp, MGM Resorts International, Caesars Entertainment Corp, SJM Holdings Ltd, Melco Crown Entertainment Ltd and Galaxy Entertainment Group Ltd. A written statement issued by Fitch says Japan has the potential to rival Singapore as the second-largest gaming market in Asia and the Pacific. Japan s pachinko industry already generates roughly $30 billion in annual revenue, Fitch estimates. Table-1: Major Up-and-Coming and Potential Asian Gaming Jurisdictions (excluding Macau) Jurisdiction Manila Bay, Philippines Matsu Islands, Taiwan Incheon, South Korea "8 Mile" Japan New Casino Opening Cultural & Language Development Phase Flight time Capex date Compatibility 2 hours 20 min. from US$4 Bn Partially open Medium Guangzhou Awaiting government Not 30 minutes by ferry to US$5.5 Bn Hi approval Determined Fujian Huge Funding/planning hours from Beijing Low Awaiting government Not 3 hours from Beijing to Gigantic Low approval Determined Tokyo Source: Guotai Junan International. See the last page for disclaimer Page 5 of 34

6 MACAU CASINO INDUSTRY History & Overview Macau, the only jurisdiction in P.R. China where casinos are allowed, has more casinos than any other region in Asia and has been the world s largest gaming destination in terms of gross gaming revenue since The Macau Special Administrative Region of the PRC, with total area of only 28.2 sq km, was established on 20 December 1999 after more than 400 years of Portuguese administration. Located on the western side of the Pearl River Delta, 60 km across from Hong Kong to the east, bordered by Zhuhai in Guangdong province to the north and facing the South China Sea to the east and south, Macau is the only area in China where casinos are allowed by the government. STDM monopolized gaming from 1962 to Gaming was formally legalized in Macau in By the 1850s, there were more than two hundred Fantan stalls operating in Macau. By the late 19th century, gaming tax had already become the government s main source of income. In 1930, Hou Heng Company won Macau s first casino gaming monopoly concession, which was subsequently granted to Tai Heng Company in 1937 and expired at the end of 1961, when the concession became open for public bidding. With only the incumbent Tai Heng Company and a new company, Sociedade de Turismo e Diversões de Macao (STDM), bidding, STDM won the bidding and obtained the monopoly concession in For the next 40 years, STDM monopolized Macao s gaming market. In 2012, 88% of Macau s GDP and 83% of Macau s total public revenue came from gaming revenue. The government will collect about MOP140 billion (US$17.5 billion) in taxes and other levies on gaming in 2013, according to calculations by the Portuguese news agency Lusa using data for the 12 months ended on November 30. Lusa forecasts that the 35 percent direct tax on gross gaming revenue will bring in about MOP124.4 billion and other indirect taxes will bring in about MOP14.2 billion. Additionally, casino operators paid around MOP1 billion in licensing fees for gambling tables and slot machines in Macau casinos are in the Macau Peninsula and Cotai. Macau consists of four segments: 1) the Peninsula (9.3 sq. km) in the North, which borders Zhuhai, China; the Southern islands of 2) Taipa and 3) Coloane, which aren t really separate islands anymore since they are unified by 4) Cotai (5.6 sq. km.), the reclamation area connecting the two islands. Three bridges link the Peninsula to Taipa. Macau s casinos are all in the Peninsula, the historical gaming center, and Cotai, the new gaming center still under development. Figure-3: Macau Geography Source: Globe-trotter macao-map.svg. See the last page for disclaimer Page 6 of 34

7 Macau gaming opened up with the end of STDM s gaming monopoly in STDM s concession expired on 31 December 2001, and Macao had decided to grant out three gaming concessions in an open bidding process in order to further the development of the industry. There were a total of 21 bidding proposals received, out of which concessions were granted to Sociedade de Jogos de Macau ( SJM HK, a subsidiary of STDM), Galaxy Casino, S.A., and Wynn Resorts (Macao) S.A. in February Macau subsequently permitted each of Galaxy, SJM and Wynn Macau to grant sub-concessions to MGM Grand Paradise S.A. (in April 2005), Venetian Macao S.A. (in Dec. 2002) and Melco Crown Jogos (Macau) S.A. (in Sept. 2006), respectively. Currently, there are a total of six concession/sub-concession holders: SJM Holdings (00880 HK), Galaxy Entertainment (00027 HK), Wynn Macau (01128 HK), Sands China (01928 HK), MGM China (02282 HK) and Melco Crown Entertainment (06883 HK and MPEL US). Table-2: Macau Casino Timeline History 1847 Portuguese colonial government legalizes gambling in Macau The Hou Heng Company wins a monopoly concession for operating all games of chance Casino monopoly awarded to Tai Heng Company, which introduces baccarat to Macau Macau government awards monopoly concession to Sociedade de Turismo e Diversões de Macao (STDM) Casino Lisboa (STDM) opens Casino gaming concession awarded to Sociedade de Jogos de Macau, which is now owned by SJM Holdings ( SJM HK) Casino gaming concession awarded to Galaxy Casino, S.A., which is now owned by Galaxy Entertainment ( Galaxy HK) Casino gaming concession awarded to Wynn Resorts (Macao) S.A., which is now owned by Wynn Macau (01128 HK) Galaxy permitted to sell sub-concession to Venetian Macao S.A., which is now owned by Sands China (01928 HK) Sands Macao opens, the first American-run casino in Macao Galaxy Entertainment opens its first casino, Galaxy Waldo SJM sells sub-concession to MGM Grand Paradise, which is now owned by MGM China (02282 HK) Wynn sells sub-concession to Melco PBL (currently Melco Crown Gaming), now owned by Melco Crown Ent. (06883 HK & MPEL US) Melco Crown Entertainment acquires Mocha slot lounges Grand Waldo (Galaxy Entertainment) opens Wynn Macau opens Melco Crown Entertainment opens Crown Casino (now Casino Altira) MGM Grand Macau opens Grand Lisboa casino opens (SJM) Venetian Macao (Sands China) opens City of Dreams (Melco Crown Entertainment) opens Encore Macau (Wynn Macau) opens Sands Cotai Central phase I opens in April 2012, phase II opens in Sept Source: University of Las Vegas Center for Gaming Research, the Companies, Guotai Junan International. Macau (sort of) limits number of casino table additions through 2023 to total of 1,400 (7,150 total tables in operation). Since 2012, the Macao Gaming Inspection and Coordination Bureau has set a table cap on the total number of casino gaming tables allowed in Macao. Each of the six casino concessionaires is allotted a certain fixed amount of tables, and must get approval to add more tables. However, the cap has proven to be flexible, since the total table cap was set at 5,500 through the end of 2013, when in actuality the number of tables increased to 5,750. The cap will expand by 1,400 tables to 7,150 tables by The incremental cap is set to be liberally applied such that new tables will be allotted from the total number that will accrue by 2023 rather than be strictly rolled at fixed quantities per year that could hold back the opening of new casinos. Casinos are finding ways to circumvent the table cap. For example, double-tables (or Siamese baccarat tables) feature two dealers handling twice the normal number of players, but because each dealer uses a common drop box, it only counts as a single table. Another is Fast Action Baccarat (FAB) tables. The seven-meter-long, three-meter-wide, semi-automated FAB tables feature 28 betting stations capable of handling up to 60 players simultaneously. Operators can also decrease the number of tables at old casinos to make room for more tables at new casinos. Planned development through 2018 (see next paragraph) would add ~3,770 new tables, far surpassing the 1,400 table addition limit. However, we think that as long as the See the last page for disclaimer Page 7 of 34

8 industry supply-demand balance is healthy, bureaucrats will be flexible with enforcement of the cap rule. Moreover, casino operators will find ways to circumvent it. Figure-4: Siamese Baccarat Table Source: Through 2017, US$25 billion in new casino development is planned, which would increase the number of tables by 67% and the number of hotel rooms by 74%. After a slowdown in new casino development in the wake of the 2008 financial crisis, 2012 saw Macau s largest surge in six years of new casinos breaking ground or getting government approvals. All of the new casino developments are in Cotai, which is replacing the Peninsula as Macau s primary gaming district. By 2017, casino operators are expected to invest an additional US$25 billion, adding 10 casinos and related facilities and ~3,866 gaming tables, an increase of 67% from year end Slot machines would increase by 88%. The number of hotel rooms would increase by 74%. Most of the action starts in 2015, as the only addition in 2014 is 100 gaming tables and 4,460 hotel rooms when Sands opens its Cotai Central Phase III resort. Table-3: Macau Gaming Tables, Slots Machines & Hotel Rooms, F F 2015F 2016F 2017F Gaming Tables 5,485 5,750 5,850 6,916 8,916 9,616 YoY Growth 3.5% 4.8% 1.7% 18.2% 28.9% 7.9% Slot Machines 16,585 13,106 13,106 15,606 23,606 24,606 YoY Growth 3.3% -21.0% 0.0% 19.1% 51.3% 4.2% Hotel Rooms 25, ,597 33,127 45,227 47,227 YoY Growth 17.1% 6.7% 16.4% 4.8% 36.5% 4.4% Source: Gaming Inspection and Coordination Bureau Macao SAR. Table-4: Macau Total Number of Casinos by Company, F Operators F 2015F 2016F 2017F S.J.M. (00880 HK) Sands China (01928 HK) Galaxy (00027 HK) Wynn Macau (01128 HK) Melco Crown (06883 HK) MGM China (02282 HK) Louis III Holdings TOTAL Source: Gaming Inspection and Coordination Bureau Macao SAR. See the last page for disclaimer Page 8 of 34

9 Table-5: Macau Planned Development Timeline Opening Casino/Development Current Status 2014 Sands Cotai Central Phase III Government Approved Investment Hotel Tables Slots (US$ bn) Rooms US$ ,460 1Q15 Louis XIII (Louis XIII Holdings) Financing Complete US$ Mid 2015 Studio City (Melco Crown) Broke Ground 2H12 US$ ,500 n.a. Mid 2015 Galaxy Macau Phase II (Galaxy Broke Ground US$ ,000 1,300 Entertainment) 3/2012 Early 2016 The Parisian Macao (Sands China, Government US$ ,500 3,300 Parcel 3) Approved Feb Wynn Palace (Cotai) Broke Ground 2/2013 US$ ,000 1,700 Mid 2016 MGM Cotai (MGM China) Broke Ground 2/2013 US$ ,500 1,600 2H2016 Galaxy Macau Phase III Planning US$ ,000 5, Lisboa Palace (SJM) Broke ground Feb Galaxy Macau Phase IV (Galaxy Entertainment) US$ ,200 2,000 Planning US$2.2 Mainly meeting & convention space Total Additions: US$27.8 3,866 11,700 20,090 Growth from 2013 (year end): 67.2% 87.7% 74.0% Source: Macubusiness.com, the companies, Guotai Junan International. See the last page for disclaimer Page 9 of 34

10 Visitors Tourist arrivals are expected to increase by less than 5% in Macau had over 29.3 million visitor arrivals in 2013, up 4.2% YoY. Tourist arrivals will grow by less than 5% in 2014, according to Macau Government Tourist Office director Maria Helena de Senna Fernandes. The tourist office will focus on attracting big spenders instead of just more tourists. Most visitors are from PR China, dominated by Guangdong visitors, which are slowly becoming less dominant. In 2013, 63.5% of total visitor arrivals were from Mainland China, continuing the increasing trend since The next two largest body count providing jurisdictions were Hong Kong (23.1%) and Taiwan (3.4%). Of the visitors from mainland China in 2013, 44% were from Guangdong, less than the 47% in 2012, which was less than the 51% in The increasing importance of Chinese tourists from outside Guangdong is likely due not only to growing disposable incomes, which makes the trip to Macau more affordable, but also improved infrastructure including high speed rail. Tourist Arrivals from tier 1 cities Beijing and Shanghai accounted for only 1.9% and 2.9% of Macau s 2013 arrivals, respectively, as transportation costs and time from these cities are much higher compared to Macau s neighboring Chinese provinces. Figure-5: Macau Visitors by Place of Origin Figure-6: Macau s P.R. China Visitors Breakdown, % 80% 60% 40% 20% 0% Mainland China Hong Kong Other Taiwan 6% 6% 5% 4% 4% 3% 13% 13% 12% 11% 11% 10% 31% 31% 30% 27% 25% 23% 51% 51% 53% 58% 60% 64% Source: Government of Macao Special Administrative Region Statistics and Census Service Guangdong 50.7% Zhejiang 4% Fujian 6% All Other Provinces 40% (each is less than 3%) Hunan 3% Shanghai 3% Source: Government of Macao Special Administrative Region Statistics and Census Service. Figure-7: Macau s P.R. China Visitors Breakdown, 2012 Figure-8: Macau s P.R. China Visitors Breakdown, Guangdong 47% Fujian 5% Zhejiang 4% Hunan 4% Shanghai 3% 2013 Guangdong 44% Fujian 4% Zhejiang 4% Hunan 4% Shanghai 3% All Other Provinces 45% (each is less than 3%) All Other Provinces 48% (each is less than 3%) Source: Government of Macao Special Administrative Region Statistics and Census Service. Source: Government of Macao Special Administrative Region Statistics and Census Service. See the last page for disclaimer Page 10 of 34

11 Entry Points In 2013, 49% of Macau s visitor arrivals entered at the Gongbei Border Crossing in Zhuhai. Fifty-four percent of all visitors entered by land. Thirty-nine percent of arrivals came by ferry boat and only 7% of Macau visitors went by air. A number of infrastructure projects have just been completed, others are still under works or being planned and are slated to complete from 2014 to The expanded capacity for handling incoming travelers will help shorten time at the border and encourage more tourist arrivals. Table-6: Macau Visitors by Entry Point NUMBER OF VISITORS (THOUSAND) Gongbei Border Crossing 11,218 10,624 12,024 14,161 13,591 14,250 Other land ,063 1,139 1,239 1,568 By land 12,095 11,449 13,087 15,300 14,830 15,817 Outer Harbour 7,272 5,998 6,462 7,125 7,042 7,072 Inner Harbour Provisional Ferry Terminal in Taipa 1,538 2,403 3,431 3,422 3,902 3,982 By sea 9,173 8,685 10,244 11,021 11,485 11,558 Airport 1,631 1,584 1,612 1,656 1,739 1,907 heliport (Outer Harbour) By air 1,665 1,619 1,634 1,682 1,768 1,950 Total (mn) 22,933 21,753 24,965 28,002 28,082 29,325 YoY -5.1% 14.8% 12.2% 0.3% 4.2% % OF TOTAL VISITORS Gongbei Border Crossing 49% 49% 48% 51% 48% 49% Other land 4% 4% 4% 4% 4% 5% By land 53% 53% 52% 55% 53% 54% Outer Harbour 32% 28% 26% 25% 25% 24% Inner Harbour 2% 1% 1% 2% 2% 2% Provisional Ferry Terminal in Taipa 7% 11% 14% 12% 14% 14% By sea 40% 40% 41% 39% 41% 39% Airport 7% 7% 6% 6% 6% 7% heliport (Outer Harbour) 0% 0% 0% 0% 0% 0% By air 7% 7% 7% 6% 6% 7% Source: Government of Macao Special Administrative Region Statistics and Census Service. By Land Gongbei Border Crossing daily capacity is planned to increase by 67% from 300,000 to 500,000. The Gonbei Border Crossing is on the PR China side in Zhuhai; the Barrier Gate, its counterpart in Macau, can already handle up to 500,000 people per day. The Gongbei Border Crossing connects to the northern end of Macau and is Macau s largest entry point. Originally, expansion had been expected to be finished by 2013, increasing daily capacity to 500,000 people. However, on July 1, 2013, MacauBusiness.com reported that Zhuhai vice-mayor Liu Xuetou said more funds were required to open See the last page for disclaimer Page 11 of 34

12 another 28 channels to increase capacity to 350,000 people a day. More money and manpower would also be needed to open 79 channels on the second floor that would take the capacity to 500,000 travelers a day. Mr. Liu did not say when the additional resources would be available, and its timeline for expansion has not yet been finalized. Guangdong-Macau New Channel pedestrian border crossing was approved by Beijing in November, The new 24 hour pedestrian border crossing will have capacity of up to 250,000 crossings per day. Located just 800 meters from the Gongbei border gate, the crossing will not have facilities for vehicles. In July 2012, Macau SAR had proposed the new channel to the Chinese central government, which approved the project in November, Completion date has not yet determined. Cotai Frontier Checkpoint The Cotai Frontier Checkpoint (also known as Lotus Bridge) links the Cotai Strip with Zhuhai and can handle a maximum of 70,000 visitors (10,000 vehicles) a day. By Sea The Outer Harbour Ferry Terminal (also known as the Macau Ferry Terminal or Hong Kong Macau Ferry Pier) located on Macau Peninsula handles most of the sea traffic between Macau and Hong Kong. It also has routes connecting with Shenzhen, Zhuhai and Guangzhou in China. The head of the Maritime Administration recently confirmed that no changes (including additional ferry roués) will take place in the Outer Harbour Ferry Terminal until Macau s Inner Harbor Ferry Terminal is a on the western coast of the Macau Peninsula and provides another transportation hub to connect ferry services between Macau Pensisula, Shenzhen (China) and Zhuhai (China). Taipa Ferry Terminal would add capacity of up to 15 million passengers per year by 2014, compared to a total of 11.6 million passengers who entered Macau by ferry in The Taipa Ferry Terminal is set to become Macau s largest ferry terminal when/if opened in This ferry terminal was first intended to be up and running by 2007, but has been delayed several times and is now expected to be completed in However, a scaled down temporary ferry terminal, located just beside the final Taipa ferry terminal s construction site, has serviced Taipa since Upon completion, the terminal would have a capacity of up to 15 million passengers a year and become the main maritime border crossing of Macau. By Air Macau International Airport annual capacity expected to increase from 6 million passengers to 15 million by A development plan is in the works for the Macau International Airport. The plan was initially expected to be presented to Macau s Executive Council for approval in 2011, but has been delayed a number of times. It is expected that capacity will increase to 7 million passengers in 2020, upgrading to 11 million in 2030 and finally 15 million in Other Infrastructure HK-Zhuhai-Macau Bridge expected to be completed in 2016 will shorten drive from HK to Macau to 30 km. The under-construction Hong Kong-Zhuhai-Macau Bridge is a series of bridges and tunnels that will connect the west side of Hong Kong to Macau and the mainland Chinese city of Zhuhai. Construction began on 15 December 2009 and is expected to be completed in Upon completion, it would shorten the distance from Hong Kong to Macau from 60 km to 30 km, and reduce the journey time to within half an hour, for an estimated charge of RMB each way. Macau Intercity Light Rail Transit system under development. Macau s proposed Light Rail Transit System would run through the Macau Peninsula, Taipa and Cotai, serving major border checkpoints such as the Gongbei Border Crossing, the Outer Harbor Ferry Terminal, the Lotus Bridge and the Macau International Airport. Construction of the first section, a 1.9-kilometre project, began in February Construction for the whole system is expected to finish around May See the last page for disclaimer Page 12 of 34

13 Guangzhou-Zhuhai Intercity Railway completed last day of 2012, shortens time to 72 minutes from Guangzhou to the Gongbei Border. The Guangzhou-Zhuhai Intercity Railway s final section (partial operation since Jan. 2011) opened on the last day of 2012, connecting Guangzhou with the Zhuhai s Gongbei Border Crossing into Macau. This high-speed rail route spans 2,000 kilometers all the way to Beijing. It now only takes 72 minutes to travel the 117 kilometers between Guangzhou South station and Gongbei Border Crossing by railway, compared to at least two hours by bus. However, relatively high fares might deter more cost conscious visitors. Table-7: Macau Planned Border Crossing Expansion 2013, Daily Planned Daily Completion Border Crossing Capacity Capacity Date Gongbei Border Crossing 300, ,000 Undetermined Guangdong-Macau New Channel Border Crossing 0 250,000 Undetermined Taipa Ferry Terminal n.a. 40, HK-Zhuhai-Macau Bridge n.a. n.a Macau International Airport 16,000 19, Source: Guotai Junan International. VIP vs. Mass Market Macau s VIP Room System. Since the mid-1980s, Macau s casino industry has been dominated by the VIP sector, which contributes the bulk of Gross Gaming Revenue (66% in 1H13). Macau has a unique VIP room contractual system, which is structured around 1) the casino, 2) the VIP gambler, 3) the VIP room contractor ( VIP promoter ), and 4) the VIP customer representative (or junket ). These 4 actors in the system operate using the 1) VIP room, 2) the VIP room contract, and 3) the rolling chip (or dead chip ). VIP promoters and junket operators. A VIP promoter develops and maintains relationships with a network of junkets that work with or for the promoter. Junkets may recruit gamblers at their own cost and risk and act as marketing agents for VIP promoters and for the casino. In some cases, a junket operator will also have a team of his own. For example, a junket operator might open a travel agency in a PR China city and hire local representatives to screen for VIP gamblers. The junket (or its employees) typically pay all of the gambler s expenses to Macau including transportation and accommodation. The successfully recruited VIP gamblers are escorted to the casino s VIP room that is affiliated with the junket s promoter. A free (no interest) rolling chip loan may be offered to the gambler. The junket operator buys or borrows rolling chips from his VIP promoter. The junket accompanies his customer at the VIP gaming tables and acts as a rolling chip dealer to the gambler. A VIP room is an individual room or set of rooms within a casino specifically designed and designated for VIP players only. Under the VIP-room contractual system, a VIP room has its own cage, accessible only to VIP promoters and junkets; VIP players do not transact with the cage. All properties of the VIP room still belong to the casino; the dealers and the gaming managers are employees of the casino; and the gaming operations of a VIP room are run by the casino. Only the marketing efforts have been contracted out to the VIP promoter and their junkets. Commission rate cap of 1.25% is easily circumvented. A VIP-room contract is the agreement between a casino and a VIP promoter, which includes details such as minimum rolling chip sales and the rolling chip commission to be paid to the VIP promoter. Since Sept. 2009, the Macau Secretary for Economy and Finance has imposed a casino junket commission rate cap of 1.25% of net rolling chip sales. However, many casino operators do not pay their gaming promoters based on net rolling chip sales but instead pay a commission which is a percentage of the gross gaming win generated, thereby making the 1.25% cap irrelevant. See the last page for disclaimer Page 13 of 34

14 Non-negotiable/rolling chips v.s cash chips/non-rolling chips. Non-negotiable chips, ( rolling chips or dead chips ) are non-negotiable, meaning they cannot be cashed in, but can only be used by being wagered at a VIP gaming table. At VIP tables, there are no table drop boxes and chips are not bought at tables but are instead purchased from the cage. The casino sells or loans rolling chips to the VIP room promoter/junket. The promoter/junket then sells or loans them to its VIP room gamblers. When VIP gamblers win, they are always paid in non-rolling chips, which are cash chips that can be cashed in. VIP gamblers can wager on a VIP table with either the rolling chips that they bought or borrowed or the non-rolling chips that they won. Most VIP gamblers do not stop playing when they have washed out their rolling chips (i.e., getting rid of all rolling chips by a combination of losing them on losing wagers and converting them into non-rolling chips on winnings). Instead, they usually continue gambling. As a gambler washes out his rolling chips into non-rolling chips, he can exchange them with his junket for more rolling chips, a process known as chip rolling, which allows the junket and the promoter to earn more commission on the additional rolling chips. VIP win rate is based on VIP Turnover, not amount wagered and not drop. VIP turnover is not the total amount wagered but is the chip wagers lost by VIP gamblers and won by the casino. It is also different than Mass Market drop. The casino s VIP win rate for a given time period is calculated as the net VIP amount won by the casino (the turnover less the amount lost by the casino) divided by the VIP turnover. The theoretical, or expected, VIP win rate in Macau is generally 2.7% to 3.0%. Mass market win/hold rate is based on table drop, and therefore not comparable to the VIP win rate. At casinos in Macau, customers can purchase Mass Market cash chips (non-rolling chips) at either the gaming tables or at the casino cage. The cash and credit markers used to purchase the cash chips at the gaming tables are deposited in the gaming table s drop box. The amount deposited in the drop box is called the drop. Mass market win (or hold ) rate is calculated as the net mass market amount won by the casino divided by the drop. Wynn Macau s Mass Market win rate was 30.5% in Since VIP Turnover is much larger than Mass Market drop, the expected win percentage with the same amount of gaming win is smaller in the VIP casino compared to Mass Market. Casino hold or win rate is different from house advantage. A useful measure of a table or entire casino s performance is the ratio of the amount won/held at a table divided by the amount deposited in its drop box (the drop ). This ratio is different than house advantage for a particular game since the drop is not the total amount wagered (gamblers can use their winnings to gamble instead of buying more chips at the table with their money going into the drop box; gamblers can also buy chips from the cage instead of at tables). Mass market win rate is distorted by changing proportion of chips purchased at tables v.s. at the casino cage. Chips purchased at the casino cage are not included in table drop (the denominator in calculating Mass Market win rate) and therefore distort the expected win percentage. With increased purchases at the casino cage from quarter to quarter, the relevant indicator of volumes in the mass market segment should be table games win amount, not the win rate. Slot win is based on handle. Slot win is the amount of handle, which is the total amount wagered on slot machines, that is retained by the casino as winnings. The Slot win rate is simply the slot win divided by slot handle. See the last page for disclaimer Page 14 of 34

15 Gross Gaming Revenue ( GGR ) Macau s Gross Gaming Revenue ( GGR ) YoY growth rate increased from 14.8% and 15.8% in 1Q13 and 2Q13, respectively, to 19.6% and 23.9% in 3Q13 and 4Q13, respectively. Full year 2013 GGR increased by 18.6% YoY to HK$350.2 billion (US$45.2 billion), a record high. GGR YoY growth rate accelerated in the second half of 2013, with every month from June to Nov. posting YoY GGR growth greater than 20%, except for August (18%). Figure-9: Macau Gross Gaming Revenue (Annually) GGR (L) YoY (R) HK$ Billion % % 60% % 42% 50% % % 31% 30% 18.6% % 20% 10% 50 14% 10% 0 0% Source: The Gaming Inspection and Coordination Bureau Macao SAR. Figure-10: Macau Gross Gaming Revenue (Monthly) GGR (L) YoY (R) MoM (R) HK$ Billion Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Source: The Gaming Inspection and Coordination Bureau Macao SAR. 40% 30% 20% 10% 0% -10% -20% Mass Market GGR contribution has been increasing since Mass market gamblers are becoming more important as their contribution to total GGR has increased from 26.8% in 2011 to 33.9% in Still, the VIP segment contributes the bulk of Macau s GGR. Looking at VIP GGR, growth has been accelerating each quarter this year, reaching 9.8%, 11.2%, 13.0% and 18.3% in 1Q13-4Q13, respectively. For Mass Market, GGR YoY growth was 27.0%, 26.5%, 34.1% and 35.5% in 1Q13-4Q13, respectively. Figure-11: Macau VIP Gross Gaming Revenue HK$ Billion % 77% 72% VIP YoY Percent of total 36% 34% 63% 65% 67% 68% 72% 73% 67% 69% 66% -3% 27% 52% 32% 8% 70% 45% 8% 13% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% Figure-12: Macau Mass Market Gross Gaming Revenue HK$ Billion Mass Market YoY Percent of total 11% 79% 48% 15% 37% 28% 13% 33% 36% 30% 31% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: The Gaming Inspection and Coordination Bureau Macao SAR. Source: The Gaming Inspection and Coordination Bureau Macao SAR. See the last page for disclaimer Page 15 of 34

16 VIP GGR growth has a 74.6% correlation with lagged China M1 money supply; Mass Market GGR growth has a 45.9% correlation with retail sales growth. We looked at the correlations between a number of quarterly economic variables and quarterly gaming revenue in Macau from 2005 through We found that China M1 money supply growth lagged by one quarter had the highest statistically significant correlation (74.6%) with Macau VIP gross gaming revenue growth. For Macau Mass Market gross gaming revenue growth, same quarter China Retail Sales Value Index YoY had the highest statistically significant correlation (45.9%). Table-8: Correlations with Macau VIP Gaming Revenue VIP Same Quarter 1 Quarter Lag Money Supply M1 YoY 48.3% 74.6% China Nominal GDP YoY 65.4% 69.4% Money Supply M0 YoY 51.1% 63.1% China Real GDP YoY 57.8% 55.5% Liv-ex 100 Fine Wine Index YoY 34.5% 41.6% China Retail Sales Value Index YoY 50.0% 20.8% Source: Bloomberg, Guotai Junan International. Table-9: Correlations with Macau Mass Market Gaming Revenue Mass Market Same Quarter 1 Quarter Lag China Retail Sales Value Index YoY 45.9% 18.8% China Nominal GDP YoY 39.7% 40.7% China Real GDP YoY 33.6% 33.0% Money Supply M0 YoY 8.0% 36.0% Liv-ex 100 Fine Wine Index YoY 4.9% 14.9% Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 16 of 34

17 Regression analysis implies 2014 Macau VIP gaming revenue growth of 11.2%. China M1 money supply grew by 8.8% YoY in 2013 and by 8.9% YoY in 4Q13. Guotai Junan Research Macro Team ( 国 泰 君 安 宏 观 研 究 团 队 ) forecasts China M1 money supply growth of 8.0% YoY in Setting the independent variable as China M1 quarterly money supply YoY growth lagged by one quarter and the dependent variable as Macau VIP gaming revenue YoY growth, we find that Y = (X). Using this equation and assuming 8.9% M1 YoY growth in 4Q13 and 8.0% growth in 1Q14-3Q14, we forecast 1Q-4Q2014 Macau VIP gaming revenue growth of 13.1%, 10.6%, 10.6% and 10.6%, respectively, which is equivalent to 2014 full year growth of 11.2%. Regression analysis implies 2014 Macau Mass Market gaming revenue growth of 22.2%. China retail sales growth was 13.1% YoY in Guotai Juanan Research Macro Team ( 国 泰 君 安 宏 观 研 究 团 队 ) forecasts China retail sales growth of 13.7% YoY in Setting the independent variable as China retail sales YoY growth and the dependent variable as Macau Mass Market gaming revenue YoY growth, we find that Y = (X). Using this equation and assuming 13.7% China retail sales YoY growth in each quarter of 2014, we forecast 2014 Macau Mass Market gaming revenue growth of 22.2%. We forecast Macau 2014 total Gross Gaming Revenue growth of 14.9%. The combined results of the two aforementioned regression based forecasts results in our forecast for 1Q-14Q2014 total Macau GGR growth of 16.0%, 14.4%, 14.7% and 14.7%, respectively, which is equivalent to 2014 full year GGR growth of 14.9%. Our 2014 forecast is 3.2 ppt above current Bloomberg consensus forecast for 11.7% GGR growth in Macau in With only 100 tables (Sands Cotai Central Phase III) of new casino capacity coming online in Macau in 2014, there will be little new casino demand growth driven by new casino supply. However, better tourist attractions and more hotel rooms in neighboring Hengqin Island will help offset the impact of lack of new gaming capacity. The 1,800 hotel room Chimelong Ocean Kingdom Resort in Hengqin Island is expected to open in early 2014 and a portion of its tourists will also be tempted to visit casinos in Macau. Figure-13: Macau VIP Gross Gaming Revenue GGR Growth VIP Growth Mass Growth % Q13 2Q13 3Q13 4Q13 1Q14F 2Q14F 3Q14F 4Q14F Source: The Gaming Inspection and Coordination Bureau Macao SAR, Guotai Junan International. See the last page for disclaimer Page 17 of 34

18 COMPANY Company Background Wynn Macau is 72.29% owned by Wynn Resorts (WYNN US) and 27.71% owned by public shareholders. Wynn Macau (the Company, or WM ) was incorporated on 4 September 2009 and listed on the Main Board of the Hong Kong Stock Exchange on 9 October The Company owns and operates a hotel and casino resort, Wynn Macau, under a concession contract signed with the Macau Government on 24 June The 20-year concession period will expire on 26 June CEO is Stephen Wynn. Mr. Stephen A. Wynn, aged 71, has been a Director of the Company since its inception and an executive Director, the Chairman of the Board of Directors, Chief Executive Officer and President (until Jan. 2014) of the Company since 16 September Mr. Wynn has also served as Chairman and Chief Executive Officer of Wynn Resorts (WYNN US) since June 2002 and has over 40 years of experience in the gaming casino industry. Mr. Wynn developed and opened The Mirage, Treasure Island and Bellagio in 1989, 1993 and 1998, respectively. In 2011, Barron s ranked Mr. Wynn as one of the world s 30 best CEOs. Wynn Macau s first and only casino, also named Wynn Macau, opened on September 6, The Wynn Macau development is located in the Macau peninsula. In December 2007 and November 2009, expansions at Wynn Macau were completed which added more gaming space, restaurants and retail outlets. Encore, a further expansion of Wynn Macau that added a fully integrated resort hotel, opened on April 21, Figure-14: Wynn Macau Figure-15: Wynn Macau Source: Source: Wynn Macau (including Encore) includes: 16 acre property; Approximately 275,000 square feet of casino space, offering 24-hour gaming and a full range of games, including private gaming salons, sky casinos and a poker pit; 501 gaming tables; 884 slot machines; 2 luxury hotel towers with a total of 1,008 rooms and suites; 8 restaurants with both casual and fine dining; 57,000 square feet of high-end, brand-name retail shopping, including stores and boutiques such as Bvlgari, Cartier, Chanel, Dior, Dunhill, Ermenegildo Zegna, Ferrari, Giorgio Armani, Graff, Gucci, Hermes, Hugo Boss, Jaeger-LeCoultre, Louis Vuitton, Miu Miu, Piaget, Prada, Roger Dubuis, Rolex, Tiffany, Tudor, Vacheron Constantin, Van Cleef & Arpels, Versace, Vertu, and See the last page for disclaimer Page 18 of 34

19 others; Recreation and leisure facilities, including two health clubs and spas, a salon, a pool; Lounges and meeting facilities; Show in the rotunda featuring a Chinese zodiac-inspired ceiling and interchangeable gold prosperity tree and dragon of fortune attractions. Table-10: Wynn Macau Casino Resort (including Encore expansion) Year Property Casino Area VIP Tables Mass Tables Slots Poker Tables Restaurants Retail Rooms Wynn Macau Only (opened Sept. 6, 2006) acres 222K Sq.Ft , K Sq.Ft. 600 Wynn Macau & Encore Expansion (Encore opened April 21, 2010) acres 256K Sq.Ft , K Sq.Ft. 1, acres 265K Sq.Ft K Sq.Ft acres 275K Sq.Ft K Sq.Ft. 1, acres 275K Sq.Ft K Sq.Ft. 1,008 Source: the Company. US$4.0 billion Wynn Palace in Cotai is expected to open by Chinese New year (Feb. 8) The Company is currently constructing Wynn Palace, a full-scale integrated resort on 51 acres of land in Cotai. Wynn Palace will contain an all-suite 1,700 room hotel, a performance lake, meeting space, casino, spa, retail offerings, and food and beverage outlets. In February 2013, the Company started pre-foundation work and continues to remain on pace with the construction schedule. The total project budget, including construction costs, capitalized interest, land, and pre-opening expenses, is US$4.0 billion. The project is fully funded and WM expects to open Wynn Palace by February The initial term of the land concession contract is 25 years, from May 2, 2012 until expiration in August 2029 and may be renewed with government approval. WM is already planning phase II of Wynn Palace, but no details have been given yet. VIP Promoters get 36% of WM s VIP gross win, or 1.1% of turnover, less than the 1.25% industry cap. Wynn Macau generally pays each gaming promoter a commission which is a percentage of the gross gaming win generated. Approximately 80% of these commissions are netted against casino revenues, because such commissions approximate the amount of the commission returned to the VIP players by the gaming promoters, and approximately 20% of these commissions are included in other operating expenses, which approximate the amount of the commission ultimately retained by the gaming promoters as compensation. The total amount of commissions paid to promoters and netted against casino revenues was HK$8.1 billion, HK$7.5 billion and HK$4.0 billion for 2011, 2012 and 1H13, respectively. This implies that total commissions paid to promoters was about HK$10.1 billion, HK$9.4 billion and HK$9.5 billion, in 2011, 2012 and 1H13, respectively, or 36.1%, 35.7% and 36.4% of the Company s VIP gross win; For 2011 and 2012, this was equivalent to 1.06% and 1.01% of the Company s VIP turnover, which is less than the commission rate cap of 1.25% of net rolling chip sales. WM typically advances commissions to gaming promoters at the beginning of each month to facilitate the promoters working capital requirements. These advances are provided to a VIP promoter and are offset by the commissions earned by such VIP promoter during the applicable month. The Company s aggregate exposure to VIP promoters were HK$367.1 million, HK$646.5 million and HK$492.1 million, (equivalent to 7.1%, 6.2% and 5.1% of the Company s cash and cash equivalents) as at year end 2011, year end 2012 and June , respectively. These outstanding commissions were cleared no later than the fifth day of the succeeding month and prior to the advancement of any further funds to a gaming promoter. Premium Credit Play. WM selectively extends credit to players contingent upon the marketing team s knowledge of the players, their financial background and payment history. The Company follows a series of credit procedures and requires from each credit recipient various signed documents that are intended to ensure the debt can be legally enforced in the jurisdiction where the player resides. WM typically requires a check in the amount of the applicable credit line from credit players, collateralizing the credit it grants to a player. See the last page for disclaimer Page 19 of 34

20 The mix of VIP table games, mass table games and slot machines in operation changes from time to time as a result of marketing and operating strategies in response to changing market demand and industry competition. Optimizing profitability depends in large part to finding the right mix of games. Also, with a limited number of table space, setting minimum table bets is a key factor in optimizing profitability. Financial Analysis Revenue WM s revenue is 94.3% from the casino and the rest is from retail, food and beverage and hotel rooms. In 2013, 94.3% of the Company s net revenue (after commissions and discounts) was casino gaming revenue. Retail was the next largest contributor, with a 4.8% share of revenue. After discounts and promotions, food and beverage contributed just 0.6% of revenue, while hotel room revenue made up just 0.4% of the total since free hotel stay is often used as an incentive to attract gamblers. Within casino revenue, the VIP segment is the largest contributor, accounting for 74.6% of casino revenue in 2013, higher than the industry average of 66%. The percentage of WM s casino revenue from the VIP segment declined from 77.8% in 2010 to 76.9% in 2011 and further to 75.3% in Figure-16: WM Net Revenue Breakdown 2013 Figure-17: WM Casino Gaming Revenue Breakdown 2013 Casino Revenue (Net) 94.3% Source: the Company. Room 0.4% Retail & Other 4.8% Food & Beverage 0.6% Mass Market 20.1% Source: the Company. Slot Machine 4.9% Poker Tables 0.3% VIP 74.6% WM s 2013 net casino revenue increased by 10.7%, with strong growth at year end. WM s net casino revenue grew by 10.9%, -6.1%, 8.1% and 12.3% YoY in 1Q-4Q14, respectively. VIP gross win increased by 2.7%, 4.0%, 8.5% and 22.5% in 1Q13-4Q13, respectively. Mass Market win increased by 16.2%, 8.5%, 13.5% and 34.7% YoY in 1Q-4Q13, respectively. Slot machine win YoY decreased by 16.4% and 8.9% in 1Q13 and 2Q13, respectively, but increased by 2.4% and 26.8% YoY in 3Q13 and 4Q13. In the first half of the year, slot machine win decreased primarily due to increased competition in the premium slot segment and a reduced number of slot machines at Wynn Macau. The notable recovery in casino revenue in the third and fourth quarters came after a new slot room and a new premium section in the Mass Market table area were opened in WM s VIP market share declined from 14.7% in 2011 to 12.1% by 2Q13, but then rebounded to 12.8% in 3Q13. WM s market share was negatively impacted when Sands Cotai Central phase I and II opened in April and September, 2012, respectively. The Company s VIP turnover growth posted YoY declines as the Company was losing market share in every quarter from 2Q12 to 2Q13, with VIP turnover down 15.3% and 1.3% YoY in 1Q13 and 2Q13. However, in 3Q13, WM s VIP turnover growth turned positive, increasing by 10.0% YoY. Due to good luck (VIP win rate higher than the average theoretical expected win rate of 2.85%), WM s VIP gross win increased by 2.7%, 4.0% and 8.6% in 1Q13-3Q13, respectively. See the last page for disclaimer Page 20 of 34

21 Figure-18: WM Market Share VIP Mass Market 18% 16% 14% 12% 16.2% 14.7% 11.9% 12.1% 12.8% 12.3% 12.1% 12.8% 12.4% 10% 8% 9.5% 9.2% 7.7% 7.6% 8.5% 6% Q13 2Q13 3Q13 4Q13 Source: The Gaming Inspection and Coordination Bureau Macao SAR, the Company. We forecast WM total net casino revenue growth of 16.3% and 5.6% in 2014 and 2015, respectively. With Macau total gaming table capacity to be added in 2014 of a mere 100 tables (Sands Cotai Central Phase III), we think WM will be able to hold its 12.4% market share in the VIP segment and 8.5% market share in the Mass Market segment. We forecast 2014 WM VIP revenue growth of 14.4% and Mass Market revenue growth of 26.0%. We forecast 2014 slot machine revenue growth of 20.2%. The combined result is 2014 expected net casino revenue growth of 16.3%. We expect WM to lose market share in 2015 as competitors increase gaming capacity. We expect WM s casino revenue growth to slow down in 2015 as it loses market share as new gaming capacity from competitors Studio City (500 tables) and Galaxy Macau Phase II (500 tables) goes online in We forecast WM 2015 VIP and Mass market gaming revenue growth falling to 4.6% and 8.4%, respectively. As a result, we forecast WM total 2015 casino revenue growth of 5.6%. Figure-19: WM VIP GGR Figure-20: WM Mass Market GGR VIP (L) Growth (R) HK$ mn Mass Market Growth (R) 40, % 35% HK$ mn 30% 14,000 50% 35, % 13,000 45% 30,000 25% 12,000 40% 25, % 20% 11,000 35% 15% 10, % 30% 20, % 10% 9,000 25% 4.6% 18.5% 15,000 5% 8,000 20% 8.4% 10,000 7,000 15% 0% 6.6% 6,000 10% 5,000-5% 5,000 5% -6.3% - -10% 4,000 0% F 2014F 2015F F 2014F 2015F Net non-casino revenues, which include room, food and beverage and retail revenues, increased by 2.7% YoY in Net room revenues, which exclude promotional allowances, plunged by 39.7% and 51.2% YoY in 3Q13 and 4Q13, respectively. During 2Q13, WM began a renovation of the approximately 600 guestrooms in the original Wynn Macau tower, contributing to an approximate 7% reduction in the number of available room-nights for 3Q13 compared to 3Q12. The Company completed the guestroom renovation in mid December In 3Q13 and 4Q13, food and beverage net revenue increased by 0.2% and 11.0% YoY, respectively, while retail and other increased by 5.2% and 4.1% YoY due to stronger business in leased stores. See the last page for disclaimer Page 21 of 34

22 Figure-21: WM Hotel Performance US$ US$ Average Daily Rate (L) RevPAR (L) Occupancy (R) RevPAR YoY (R) 94% 96% 96% 97% 94% 96% 96% 97% 90% 70% 50% 30% 0.0% 4.8% 2.8% 0.3% -0.2% 0.3% 1.6% 0.2% 10% -10% We forecast WM total net revenue growth of 16.0% and 5.9% in 2014 and 2015, respectively, of which we forecast non-casino net revenue growth of 10.1% and 10.2% in 2014 and 2015, respectively. Figure-22: WM Casino Net Revenue Figure-23: WM Total Net Revenue HK$ mn 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 Casino Revenue (Net) Growth (R) 31.8% 35% 30% 25% 16.3% 20% 10.7% 15% 5.6% 10% 5% -3.8% 0% -5% -10% A 2014F 2015F HK$ mn 40,000 38,000 36,000 34,000 32,000 30,000 28,000 26,000 24,000 22,000 20,000 Non-casino Revenue (Net) Casino Revenue (Net) Total Growth (R) 31.5% 16.0% 10.2% 5.9% -3.5% F 2014F 2015F 35% 30% 25% 20% 15% 10% 5% 0% -5% Operating Expenses WM s operating expenses consist of gaming taxes and premiums, staff costs, other operating expenses, D&A and property charges. Gaming Taxes and Premiums as a percent of Casino Net Revenue has been stable at 51.8%, 51.5% and 51.5% in 2011, 2012 and 1H13, respectively. WM must pay a Gaming Tax of 35% of gross gaming revenue and a mandatory public development/social related contribution of 4% of gross gaming revenue. The Company must also pay a Gaming Premium, which is composed of: 1) a HK$29.1 million/year fixed portion; and 2) a variable portion based on the number of gaming tables and slots/machines (HK$291,262/ year /VIP gaming table, HK$145,631/ year/ mass market gaming table and HK$971/ year/ slot machine). The Company s Gaming Taxes and premiums as a percent of total Operating Revenue was 48.7%, 48.4% and 48.3% in 2011, 2012 and 1H13, respectively. See the last page for disclaimer Page 22 of 34

23 Staff costs consist of wages and salaries, staff quarters and training expenses, share-based payment expenses and retirement plan contributions incurred as incentives to staff and social security costs. Staff costs as a percent of operating revenue increased from 7.1% in 2011 to 7.9% in 2012 and was 7.8% in 1H13. The increase in 2012 was primarily due to salary increases implemented in Other operating expenses include junket commissions, royalty fees, provision for accounts receivable doubtful accounts, operating lease rental expense for the land, buildings, equipment, as well as cost of sales for food and beverage, advertising, entertainment, traveling and office expenses. Other operating expenses increased by 2.2% from HK$2.4 billion in 1H12 to HK$2.5 billion in 1H13, primarily due to a change in the estimate for the allowance for doubtful accounts receivable. We expect operating expense to net operating revenue ratio to remain stable at 75.1%, 75.1% and 75.0% during , respectively. Gaming taxes, property charges and other, junket commissions, royalty fees and advertising and promotion combined accounted for 81.5% of total operating costs in 1H13. Each of these costs is either stable or grows basically in line with casino revenue or total operating revenue, and so we therefore expect these costs to increase at the same pace as revenue. Only staff costs and cost of sales are highly subject to cost inflation pressures and might grow at a significantly faster pace than revenue growth. However, since these two costs together accounted for just 13% of 1H13 operating costs, we expect the Company s operating expense ratio to remain stable going forward. Figure-24: WM Operating Expenses / Operating Revenue Figure-25: Breakdown of WM Other Operating Expenses / Operating Revenue Gaming Taxes Staff Costs Junket commissions Other D&A Royalty fees Cost of sales Prop. Charges & Other Total Operating Costs Advertising and promotions Other 90% 79.7% 10% 76.5% 75.5% 75.1% 75.1% 75.0% 80% 70% 8% 6.8% 6.5% 6.7% 6.6% 60% 48.7% 48.4% 48.3% 48.3% 48.7% 48.6% 50% 6% 40% 4.0% 4.0% 4.0% 4.0% 4% 30% 17.6% 16.8% 16.5% 16.3% 16.0% 16.0% 20% 2% 10% 0% H F 2014F 2015F 0% H F WM is exempt from Macau s Complementary Tax on casino income until Macau generally imposes a progressive rate Macau Complementary Tax on net income of up to 12%, and a 12% tax on dividends paid from Macau entities to their shareholders. However, the Company is exempt from the 12% Complementary Tax on casino gaming profits through 31 December 2015, upon which time the exemption may be renewed. The Company s non-gaming profits remain subject to the Macau Complementary Tax. As for the dividend tax, WM has agreed with the Macau government to make an annual payment of MOP15.5 million (HK$15.1 million) from 2011 through 2015 in lieu of the Complementary Tax. WM s Adjusted EBITDA is different than parent Wynn Resorts Adjusted Property EBITDA. Adjusted EBITDA is earnings before finance costs, taxes, depreciation, amortization, pre-opening costs, property charges and other, share-based payments, and other non-operating income/(expense). It is important to note that the Company s reported Adjusted EBITDA, which is not reported quarterly but only semi-annually, is different from Wynn Resorts quarterly reported Adjusted Property EBITDA for its Macau segment. The difference is primarily due to the inclusion of royalty fees, adjustments for IFRS differences with U.S. GAAP and corporate and other support services. Forecast EPS of HK$1.46, HK$1.66 and HK$1.75, respectively, representing growth of 18.0%, 13.5% and 5.3%, respectively. We forecast Adjusted EBITDA of HK$8.966 billion, HK$ billion and HK$ billion, See the last page for disclaimer Page 23 of 34

24 representing growth of 15.9%, 15.4% and 6.2%, respectively. We expect relatively steady operating and EBITDA margin going forward. We forecast net profit margin decline from 24.2% in 2013 to 23.7% in 2014 since the Company s finance expenses increase in 2014 as a result of US$600 notes issuance in October Figure-26: WM Profit Margins Figure-27: WM Profits Operating Margin Adjusted EBITDA Margin Adj. EBITDA Net Profit Net Profit Margin Adj. EBITDA Growth Net Profit Growth 30% 28.6% 28.5% 28.5% 28% 27.0% 27.2% 26.2% 26% 24.5% 24.9% 24.9% 25.0% 24% 23.5% 22% 24.2% 23.7% 20.3% 22.6% 23.6% 20% 19.7% 20.1% 18% H F 2014F 2015F HK$ Billion F 2014F 2015F 40% 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Net Gearing and Liquidity Net gearing to increase to 47.3% by On September 30, 2013 WM had approximately US$2 billion of cash and cash equivalents, while total debt outstanding was US$947.8 million, which was senior term loan facilities subject to interest at LIBOR or HIBOR plus 1.75% 2.50%. In 4Q13 WM issued $600.0 million of new 5.25% senior notes due in 2021 for the funding of its US$4 billion Cotai project, Wynn Palace. We expect that WM s current financing along with future operating cash flows will be enough to cover capital costs of Wynn Palace, and that the Company will not need additional outside funding through As the Company uses more cash for Capex on Wynn Palace, which will complete in early 2016, we expect net gearing to move from the current net cash position to 47.3% in 2015, a healthy level compared to average net gearing of 90% for U.S. listed peers (net cash for HK listed peers). Figure-28: WM Capex and D&A Figure-29: WM Net Gearing and Interest Coverage Ratio Capex (L) D&A (L) Net Gearing (L) Interest Coverage Ratio (R) D&A Growth (R) D&A % of Revenue (R) 60% 47.3% 4000% 14,000 13,041 15% 12,002 40% 12,000 10% 20% 6.5% 3000% 10,000 5% 0% 8,000 0% -20% -8.5% 2000% 6,000-40% 4,427-5% 4,000-60% 1000% 2, ,099-10% -80% -68.6% -61.8% % 0% -15% F 2014F 2015F F 2014F 2015F See the last page for disclaimer Page 24 of 34

25 Valuation Sector is trading at a 20.6% EV/EBITDA premium (12.6% PE premium) to its historical average. The Macau gaming sector is currently trading at 15.9x forward EV/EBITDA, which is 20.6% above its historical average forward EV/EBITDA of 13.2x; current average forward PE is 19.5x, which is 12.6% above the historical average of 17.3x. We think the premium is due to 1) expectations that the recent increase in gaming revenue growth rate will form a trend (Macau gaming revenue YoY growth rate increased to 23.9% in 4Q13, compared to 16.7% during 1Q13-3Q13); and 2) pricing in the 67% increase in table gaming capacity to be added during Compared to the sector s current average forward EV/EBITDA, WM is trading at an 18.0% premium, which is above the 14.7% premium that WM has historically traded at relative to Macau peers, on average. Currently, WM is trading at 18.8x forward EV/EBITDA, which is a 38.0% premium to its historical average. Table-11: Gaming Sector Peers Comparison Company Stock Code Currency Last price Mkt Cap PE EV/EBITDA PEG D/Y(%) ROE(%) USD (bn) 13F 14F 15F 13F 14F 15F Y1-Y3 13F 13F Macau Wynn Macau Ltd 1128 HK HKD Sands China Ltd 1928 HK HKD Galaxy Entertain 27 HK HKD Melco Crown-Adr MPEL US USD Sjm Holdings Ltd 880 HK HKD Mgm China Holdin 2282 HK HKD Simple Average Weighted Average U.S. Caesars Entertai CZR US USD n.a. n.a. n.a Boyd Gaming Corp BYD US USD n.a n.a. 0.0 (7.4) Penn Natl Gaming PENN US USD n.a. 9.3 Isle Of Capri ISLE US USD n.a Las Vegas Sands LVS US USD Mgm Resorts Inte MGM US USD Pinnacle Entmnt PNK US USD (16.9) Wynn Resorts Ltd WYNN US USD Simple Average Weighted Average Other Genting Singapor GENS SP SGD Genting Malaysia GENM MK MYR Bloomberry Res BLOOM PM PHP Echo Entert Grp EGP AU AUD Belle Corp BEL PM PHP Simple Average Weighted Average Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 25 of 34

26 Figure-30: Macau Gaming Historical Forward Average PE Figure-31: Macau Gaming Historical Forward Average EV/EBITDA BEst P/E (Blended Forward) Average +1 St. Dv. -1 St. Dv. 8 Sep-08 Sep-09 Sep-10 Sep-11 Sep-12 Sep BEst EV/BEst EBITDA (Blended Forward) Average +1 St. Dv. -1 St. Dv. Figure-32: WM Historical Forward PE Figure-33: WM Historical Forward EV/EBITDA BEst P/E (Blended Forward) Average 8 Oct-09 Oct-10 Oct-11 Oct-12 Oct-13 Source: Bloomberg, Guotai Junan International BEst EV/BEst EBITDA (Blended Forward) Average +1 St. Dv. -1 St. Dv. 6 Oct-09 Aug-10 Jun-11 Apr-12 Feb-13 Dec-13 Source: Bloomberg, Guotai Junan International. See the last page for disclaimer Page 26 of 34

27 We set our target price at HK$41.00, which is equivalent to 21.7x 2014 EV/EBITDA and 24.7x 2014 PE; Buy. WM s new Wynn Palace property, which is scheduled to open by February 2016, will double WM s current gaming capacity. Wynn Palace will significantly increase cash flows, and while no details have been disclosed yet, the Company is already planning phase II of Wynn Palace, which, if completed, could bring further upside. We think WM s current valuation is low as it does not fully reflect the contribution from Wynn Palace. We use DCF analysis to derive a NAV per share of HK$ We then apply a 14.9% discount to arrive at our target price, which reflects 14.5% upside potential. Table-12: DCF Valuation Risk Free Rate 2.11% Sum of PV FCFF (HK$ mn) 135,564 Market Return 13.98% + PV Terminal Value (HK$ mn) 115,274 Market Risk Premium 11.87% Enterprise Value (HK$ mn) 250,838 Adj. Beta Net Debt/(cash) (HK$ mn) 991 Equity Discount Rate 13.98% Equity Value (HK$ mn) 249,847 Shares Outstanding (mn) 5,188 After Tax Cost of Debt 5.2% NAV per share (HK$) D/(D+E) 40.0% E/(D+E) 60.0% WACC 10.5% Long term growth rate 3.0% Source: Bloomberg, the Company, Guotai Junan International. See the last page for disclaimer Page 27 of 34

28 RISKS The Company might not secure extension of gaming concession in 2022, or Macau government might exercises its redemption right in The Company s gaming concession agreement expires in June Unless the concession is extended, in June 2022, all of the Company s gaming operations and related equipment in Macau will be automatically transferred to the Macau government without compensation to the Company. However, based on a June 2013 trip to Macau where it met with government agencies, a Fitch Ratings agency team led by Michael Paladino, head of Fitch s gaming, lodging and leisure sector, concluded that there is little risk that industry concessions won t be renewed upon expiration in , assuming concessionaires remain compliant with laws and regulations. We believe it is likely that WM will be able to have its gaming concession extended, as not doing so would reduce Macau s competitiveness compared to other gaming jurisdictions. With more and more competing gaming jurisdictions appearing and expanding in Asia, it is possible that the Macau government could not only renew concessions but might do so on more favorable terms in order to remain competitive. Current gaming income tax exemption and dividend tax agreement expire 31 Dec. 2015, and may not be extended. Effective 6 September 2006, WM received a 5-year exemption from Macau s 12% Complementary Tax on its casino gaming profits. On 30 November 2010, WM received an additional 5-year exemption from 1 January 2011 through 31 December In June 2009, WM entered into an agreement (effective retroactively to 2006) with the Macau government that provided for annual payments of MOP7.2 million (HK$7.0 million) in lieu of Complementary Tax on dividend distributions from gaming profits. The term was for five years, which coincided with the Tax Holiday which began in In August 2011, a 5-year extension was granted with an annual payment of MOP15.5 million (HK$15.0 million) due to the Macau government for each year through 2015 in lieu of Complementary Tax on dividend distributions. There is no assurance that the Macau government will permit these two arrangements to continue after We believe it is likely that WM will be able to have its tax exemptions extended, as not doing so would reduce Macau s competitiveness compared to other gaming jurisdictions. Potential violations of the Foreign Corrupt Practices Act or Anti-Money Laundering Laws. As an example, U.S. Las Vegas Sands Corp (LVS) admitted in its 2012 annual report that there were likely violations of the books and records and internal controls provisions of the U.S. Foreign Corrupt Practices Act (FCPA). Any casino operator in Macau could encounter similar problems. PR China has in the past increased restrictions on visas to Macau, and may do so again in the future. Worried that some Guangdong residents were gambling too much in Macau, in 2008, the PRC imposed new rules limiting Guangdong residents to two trips a year. Then, around Sept. 2009, the authorities began easing up on the rule, allowing trips from Guangdong to Macau of once a month. See the last page for disclaimer Page 28 of 34

29 FINANCIAL STATEMENTS & RATIOS Income Statement Year end Dec. (HK$ mn) 2011A 2012A 2013F 2014F 2015F Casino 27,756 26,707 29,551 34,377 36,308 Rooms Food and Beverage Retail and Other 1,414 1,417 1,489 1,674 1,846 Revenue (Net) 29,498 28,452 31,344 36,351 38,483 YoY 31% -4% 10% 16% 6% Gaming Tax & Premium (14,364) (13,763) (15,149) (17,716) (18,711) Staff Costs (2,089) (2,239) (2,352) (2,671) (2,809) Other Operating Expenses (5,180) (4,785) (5,108) (5,834) (6,177) D&A (1,016) (919) (919) (1,020) (1,125) Property Charges, Other (866) (49) (10) (63) (38) Total Operating Expenses (23,516) (21,755) (23,537) (27,303) (28,860) Operating Profit 5,982 6,698 7,807 9,048 9,623 YoY 27% 12% 17% 16% 6% Finance Revenues Finance Costs (259) (294) (370) (556) (635) ForEX Differences Other 80 (61) Profit Before Tax 5,894 6,455 7,616 8,641 9,098 Income Tax Expense 27 (15) (18) (20) (21) Net Profit 5,921 6,440 7,598 8,621 9,077 YoY 34% 9% 18% 13% 5% Basic EPS (HK$) YoY -99% 9% 18% 13% 5% Diluted EPS (HK$) Adjusted EBITDA 7,951 7,738 8,966 10,344 10,982 Balance Sheet As at 31 Dec. (HK$ mn) 2011A 2012A 2013F 2014F 2015F P&E and Construction 7,693 7,999 12,426 25,466 37,469 Land Lease 2,244 2,167 2,095 2,023 1,950 Goodwill Other Total Non-Current Assets 11,058 10,895 15,206 28,174 40,104 Investments Inventories Receivables Other 111 1, Cash & Equiv. 5,157 10,475 19,305 10,934 10,793 Total Current Assets 6,302 12,720 20,806 12,572 12,490 Total Assets 17,360 23,616 36,012 40,746 52,594 Accounts Payable 1, ,410 1,636 1,732 Land Premium Payable Other Payables & Accruals 5,657 4,902 7,773 9,015 9,544 Other 2, Total Current Liabilities 9,325 6,355 9,599 11,102 11,698 Senior Notes 0 0 4,680 4,680 4,680 Loans & Borrowings 2,501 5,494 7,245 7,245 15,000 Land Premium Payable Other Payables & Accruals Other Total Non Current Liabilities 4,006 6,760 13,027 12,716 20,242 Total Liabilities 13,332 13,115 22,626 23,818 31,940 Shareholders' Equity 4,028 10,501 13,386 16,929 20,654 BPS (HK$) See the last page for disclaimer Page 29 of 34

30 Cash Flow Statement Year end Dec. (HK$ mn) 2011A 2012A 2013F 2014F 2015F Profit Before Tax 5,894 6,455 7,616 8,641 9,098 Depreciation ,053 Amortization Doubtful Accounts Provision Finance Costs (net) Other Adjustments Working Cap Adjust. 1, ,108 1, Cash from Operations 9,417 7,082 12,072 11,648 11,523 Increase in Restricted Cash 0 (769) P&E (445) (1,099) (4,427) (13,041) (12,002) Other (1,060) (211) Cash from Investing (1,506) (2,079) (3,515) (12,934) (11,935) Share Issuance Borrowing (net) (187) 964 6, ,755 Payments (196) (665) (848) (1,035) (1,114) Special/Interim Dividends Paid (6,225) 0 (5,333) (6,051) (6,371) Cash from Financing (6,608) (7,085) 271 Effect of For-Ex, net Net Change in Cash 1,338 5,319 8,830 (8,371) (141) Year End Cash Equivalents 5,157 10,475 19,305 10,934 10,793 Ratios 2011A 2012A 2013F 2014F 2015F Margins Effective Gaming Tax Rate 51.8% 51.5% 51.3% 51.5% 51.5% Operating Margin 20.3% 23.5% 24.9% 24.9% 25.0% Net Profit Margin 20.1% 22.6% 24.2% 23.7% 23.6% Adj. EBITDA Margin 27.0% 27.2% 28.6% 28.5% 28.5% Return Ratios ROA 37.3% 31.4% 25.5% 22.5% 19.4% ROE 142.2% 88.6% 63.6% 56.9% 48.3% Return on Capital Employed 66.2% 54.0% 37.8% 33.4% 27.8% Return on Invested Capital 139.2% 178.7% 48.9% 25.5% 13.8% Liquidity & Leverage Leverage (ie., Gearing) 115.4% 75.6% 99.8% 78.7% 104.7% Net Gearing Net cash Net cash Net cash 6.5% 47.3% Interest Coverage Ratio % % % % % Current Ratio 67.6% 200.2% 216.8% 113.2% 106.8% See the last page for disclaimer Page 30 of 34

31 APPENDIX Glossary Term Adjusted Average Daily Rate 经 调 整 平 均 每 日 房 租 Adjusted REVPAR 经 调 整 REVPAR Average Daily Rate ("ADR") 平 均 每 日 房 租 Casino revenue 娱 乐 场 收 益 Drop 投 注 额 Drop box 投 注 箱 Definition ADR calculated based on room revenues plus associated promotional allowances. 根 据 房 间 收 益 加 上 有 关 推 广 优 惠 计 算 的 ADR REVPAR calculated based on room revenues plus associated promotional allowances. 根 据 房 间 收 益 加 上 有 关 推 广 优 惠 计 算 的 REVPAR The amount calculated by dividing total room revenues (less service charges, if any) by total rooms occupied. 将 房 间 收 益 总 数 ( 扣 除 服 务 费 ( 如 有 )) 除 以 总 入 住 房 间 所 得 出 的 数 额 Revenue from casino gaming activities (gross table games win and gross slot win) net of a portion of commissions and discounts. 扣 除 部 份 佣 金 及 折 扣 并 根 据 国 际 财 务 报 告 准 则 所 计 算 来 自 娱 乐 场 博 彩 活 动 的 收 益 ( 赌 台 毛 收 益 及 角 子 机 毛 收 益 ) The amount of cash and promotional coupons deposited in a gaming table's drop box. 存 入 赌 台 银 箱 内 的 现 金 数 目 及 推 广 优 惠 券 A box or container that serves as a repository for cash and promotional coupons. 作 为 现 金 及 推 广 优 惠 券 存 放 处 的 箱 子 或 盛 载 器 Gaming promoters 博 彩 中 介 人 Gross gaming revenue / win 博 彩 收 益 总 额 或 博 彩 总 收 益 Gross slot win 角 子 机 毛 收 益 Gross table games win 赌 台 毛 收 益 In-house VIP Program 娱 乐 场 贵 宾 计 划 Promotional allowance 推 广 优 惠 REVPAR Rolling Chip 泥 码 Turnover 转 码 数 VIP client / player 贵 宾 客 户 VIP turnover 贵 宾 赌 台 转 码 数 Individuals or companies licensed by and registered with the Macau government to promote games of fortune and chance or other casino games to patrons, through the arrangement of certain services, including transportation, accommodation, dining and entertainment, whose activity is regulated by Macau. 澳 门 政 府 发 牌 及 注 册 的 人 士 或 公 司, 透 过 安 排 若 干 服 务 ( 包 括 交 通 住 宿 膳 食 及 娱 乐 ) 向 顾 客 推 广 幸 运 博 彩 或 其 他 娱 乐 场 博 彩, 其 活 动 须 受 澳 门 第 6/2002 号 行 政 法 规 所 规 管 The total win generated by all casino gaming activities combined, calculated before deduction of commissions and discounts. 共 计 所 有 娱 乐 场 博 彩 活 动 产 生 的 总 收 益, 乃 于 扣 除 佣 金 及 折 扣 前 计 算 The amount of handle (representing the total amount wagered) that is retained as winnings. This amount and gross table games win is recorded as casino revenue after deduction of progressive jackpot liabilities and a portion of commissions and discounts. 保 留 作 为 博 彩 收 益 的 投 注 金 额 ( 相 当 于 总 落 注 金 额 ) 公 司 计 入 此 金 额 及 于 扣 除 累 进 奖 金 负 债 以 及 部 份 佣 金 及 折 扣 后 之 赌 台 毛 收 益 作 为 娱 乐 场 收 益 The amount of drop (in general casino segment) or turnover (in VIP casino segment) that is retained as winnings. This amount and gross slot win is recorded as casino revenue after deduction of a portion of commissions and discounts. 保 留 作 为 博 彩 收 益 的 投 注 额 ( 公 司 的 中 场 分 部 ) 或 转 码 数 ( 公 司 的 贵 宾 娱 乐 场 分 部 ) 扣 除 佣 金 及 折 扣 部 份 后, 公 司 记 录 此 数 额 及 角 子 机 毛 收 益 作 为 娱 乐 场 收 益 An internal marketing program wherein WM directly markets casino resorts to gaming clients, including to high-end or premium players in the greater Asia region. These players are invited to qualify for a variety of gaming rebate programs whereby they earn cash commissions and room, food and beverage and other complimentary allowances based on their turnover level. WM often extends credit to these players based upon knowledge of the players, their financial background and payment history. 内 部 市 场 推 广 计 划, 据 此, 公 司 直 接 向 博 彩 客 户 ( 包 括 大 亚 洲 区 内 的 高 端 及 优 质 客 户 ) 推 广 公 司 的 娱 乐 场 渡 假 村 该 等 被 邀 请 之 客 户 有 资 格 参 与 各 项 博 彩 回 馈 计 划, 此 等 计 划 为 根 据 其 投 注 额 水 平 赚 取 现 金 佣 金 及 房 间 餐 饮 及 其 他 优 惠 公 司 通 常 会 按 对 该 等 客 户 的 认 识 客 户 的 财 务 背 景 及 付 款 记 录 而 提 供 贷 款 The retail value of rooms, food and beverage and retail and other services furnished to guests (typically VIP clients) without charge. 向 宾 客 ( 一 般 为 贵 宾 客 户 ) 免 费 提 供 的 房 间 餐 饮 及 零 售 及 其 他 服 务 的 零 售 价 值 Revenue per Available Room; the amount calculated by dividing total room revenues (less service charges, if any) by total rooms available. 将 总 房 间 收 益 ( 扣 除 服 务 费 ( 如 有 )) 除 以 可 供 使 用 房 间 总 数 计 算 出 的 数 额 Physically identifiable chip that is used to track VIP wagering volume for purposes of calculating commissions and other allowances payable to gaming promoters and Wynn Macau s individual VIP players. 外 型 可 予 辨 识 的 筹 码, 用 作 记 录 贵 宾 的 投 注 额, 以 计 算 应 付 予 博 彩 中 介 人 及 永 利 澳 门 个 别 贵 宾 客 户 的 佣 金 及 其 他 津 贴 The sum of all losing Rolling Chip wagers within the VIP program 贵 宾 计 划 内 泥 码 总 投 注 额 Client, patron or players who participates in Wynn Macau s In-house VIP Program or in the VIP program of any of its gaming promoters. 参 加 永 利 澳 门 娱 乐 场 贵 宾 计 划 或 公 司 任 何 一 名 博 彩 中 介 人 的 贵 宾 计 划 的 客 户 Turnover resulting from VIP table games only. 只 计 及 贵 宾 赌 台 的 转 码 数 See the last page for disclaimer Page 31 of 34

32 Revenue Model, Annual HK$ million F 2014F 2015F CASINO REVENUE VIP Segment Number of VIP tables (end of period) VIP turnover 709, , , ,941 1,151,568 1,204,051 VIP gross win 21,307 28,056 26,294 28,698 32,820 34,315 Win rate (% of turnover) 3.00% 2.93% 2.84% 3.01% 2.85% 2.85% Mass Segment Number of Mass tables (end of period) Mass market drop 18,214 21,559 21,448 20,441 23,094 25,027 Mass market gross win 4,292 6,132 6,540 7,751 9,769 10,586 Win rate (% of turnover) 23.56% 28.44% 30.49% 37.92% 42.30% 42.30% Slot Machines Number of slot machines (end of period) 1, Slot machine handle 32,681 42,044 36,446 37,887 45,673 47,568 Slot machine gross win 1,697 2,157 1,917 1,901 2,285 2,380 Win rate (% of turnover) 5.19% 5.13% 5.26% 5.02% 5.00% 5.00% Poker Number of poker tables (end of period) Poker revenue VIP gross win 21,307 28,056 26,294 28,698 32,820 34,315 Mass gross win 4,292 6,132 6,540 7,751 9,769 10,586 Slot gross win 1,697 2,157 1,917 1,901 2,285 2,380 Poker Commissions (6,337) (8,714) (8,195) (8,933) (10,639) (11,123) Casino revenue (net) 21,058 27,756 26,707 29,551 34,377 36,308 OTHER REVENUE Hotel Rooms (end of period) 1,005 1,008 1,008 1,008 1,008 1,008 Average Occupancy Rate 87.8% 91.8% 93.0% 95.5% 95.5% 95.5% Adjusted ADR (HK$) 2,261 2,450 2,447 2,433 2,444 2,441 Adjusted RevPAR (HK$) 1,986 2,249 2,275 2,322 2,333 2,330 Adjusted room revenue Promotional allowance (570) (778) (770) (792) (833) (832) Room Revenue (net) Food and beverage (net) Retail and other (net) 1,072 1,414 1,417 1,489 1,674 1,846 Non-casino revenue (net) 1,381 1,742 1,746 1,793 1,974 2,175 Total Operating Revenues (Net) 22,439 29,498 28,452 31,344 36,351 38,483 YOY CHANGE VIP Gross Win 75% 32% -6% 7% 11% 9% Mass Gross Win 4323% 43% 7% 14% 22% 19% Slot Gross Win 30% 27% -11% -10% 6% 6% Poker 2% 27% 21% -11% 6% 6% Commissions 67% 38% -6% 8% 18% 9% Casino rev. (net) 60% 32% -4% 7% 12% 11% Non-casino revenue (net) 55% 26% 0% 1% 6% 10% Total Operating Revenues (Net) 59% 31% -4% 6% 11% 11% See the last page for disclaimer Page 32 of 34

33 Revenue Model, Quarterly HK$ million 4Q13F 1Q14F 2Q14F 3Q14F 4Q14F 1Q15F 2Q15F 3Q15F 4Q15F CASINO REVENUE VIP Segment Number of VIP tables (end period) VIP turnover 266, , , , , , , , ,539 VIP gross win 7,795 8,093 7,941 7,909 8,878 8,950 8,145 8,113 9,107 Win rate (% of turnover) 2.92% 2.85% 2.85% 2.85% 2.85% 2.85% 2.85% 2.85% 2.85% Mass Segment Number of Mass tables (end period) Mass market drop 5,368 5,188 5,316 5,931 6,659 6,339 5,549 6,190 6,949 Mass market gross win 2,273 2,194 2,249 2,509 2,817 2,681 2,347 2,618 2,940 Win rate (% of turnover) 42.34% 42.30% 42.30% 42.30% 42.30% 42.30% 42.30% 42.30% 42.30% Slot Machines Number of slot machines (end period) Slot machine handle 10,864 11,081 11,303 11,529 11,760 11,803 11,862 11,921 11,981 Slot machine gross win Win rate (% of turnover) 5.56% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% Poker Number of poker tables (end period) Poker revenue VIP gross win 7,795 8,093 7,941 7,909 8,878 8,950 8,145 8,113 9,107 Mass gross win 2,273 2,194 2,249 2,509 2,817 2,681 2,347 2,618 2,940 Slot gross win Poker Commissions (2,480) (2,623) (2,574) (2,564) (2,878) (2,901) (2,640) (2,630) (2,952) Casino revenue (net) 8,226 8,253 8,216 8,467 9,441 9,358 8,483 8,736 9,732 OTHER REVENUE Hotel Rooms (end of period) 1,008 1,008 1,008 1,008 1,008 1,008 1,008 1,008 1,008 Average Occupancy Rate 96.7% 93.8% 95.5% 95.8% 96.7% 93.8% 95.5% 95.8% 96.7% Adjusted ADR (HK$) 2,444 2,444 2,444 2,444 2,444 2,441 2,441 2,441 2,441 Adjusted RevPAR (HK$) 2,359 2,293 2,334 2,342 2,364 2,290 2,331 2,339 2,361 Adjusted room revenue Promotional allowance (212) (202) (208) (211) (213) (202) (207) (210) (212) Room Revenue (net) Food and beverage (net) Retail and other (net) Non-casino revenue (net) Total Operating Revenues (Net) 8,691 8,728 8,703 8,966 9,954 9,881 9,020 9,286 10,297 YOY CHANGE VIP Gross Win 12% 13% 11% 11% 11% 10% 8% 8% 8% Mass Gross Win 18% 22% 22% 22% 22% 22% 18% 18% 18% Slot Gross Win -11% -9% 15% 7% 13% 10% 7% 4% 2% Poker -13% 5% 6% 6% 6% 6% 6% 6% 6% Commissions 16% 22% 17% 22% 11% 10% 8% 8% 8% Casino rev. (net) 11% 11% 12% 10% 14% 14% 11% 10% 10% Non-casino revenue (net) -5% -4% 4% 14% 10% 10% 10% 10% 10% Total Operating Revenues (Net) 10% 11% 11% 10% 14% 14% 10% 10% 10% See the last page for disclaimer Page 33 of 34

34 Company Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Buy Relative Performance >15%; or the fundamental outlook of the company or sector is favorable. Accumulate Relative Performance is 5% to 15%; or the fundamental outlook of the company or sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable. Sell Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable. Sector Rating Definition The Benchmark: Hong Kong Hang Seng Index Time Horizon: 6 to 18 months Rating Definition Outperform Relative Performance >5%; or the fundamental outlook of the sector is favorable. Neutral Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform Relative Performance <-5%; or the fundamental outlook of the sector is unfavorable. DISCLOSURE OF INTERESTS (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for Shandong Chenming Paper Holdings Limited-H shares (01812), China All Access (Holdings) Limited (00633) and China U-Ton Holdings Ltd. (08232), Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. DISCLAIMER This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services and etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily). Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan. Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision. This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen s Road Central, Hong Kong. Tel.: (852) Fax: (852) Website: See the last page for disclaimer Page 34 of 34