Macau:Govt may ban phone betting in VIP rooms

　　More regulatory tightening coming...

　　According to local press Mingpao, Gaming Bureau (DICJ) will likely ban phone betting in casinos, eff. next Monday (9 May). We est phone betting accounts for c.10-15% of VIP rev in Macau, or c.2-3% of EBITDA. Except for Sands, which had banned this since Oct2014, we believe all other casinos allow phone betting currently. SJM, Galaxy and Wynn Macau will likely be most impacted given their higher VIP exposure. Macau is now trading at 13.5x DBe 2016 EV/EBITDA, which is still expensive in our view. As mentioned in our May 2 report, we expect more regulatory tightening after govt's mid-term review on gaming concession. Relatively, we prefer Sands China given its 7.3% div yield.

　　DICJ to implement more rules on junkets

　　Since Paulo Chan was appointed as the new head of Gaming Bureau (DICJ) in Dec 2015, he had implemented a series of tighter junket regulations, including regular accounting reports and submission of shareholder details. The new DICJ head came from the judicial system and was the prosecutor in a high profile case last year. He said in his first meeting with the 6 gaming operators that stricter regulations is one of his top priorities. We see the new ban on phone betting as just the first step in a series of regulatory tightening this year.

　　Phone betting arrangement

　　In phone betting arrangements, high rollers who cannot come to Macau send their associates to a junket VIP room to place bets on their behalf, often taking their betting advice over the phone or an app. According to our channel check, due to visa restrictions in Macau, it is common for China high rollers to place wagers in casinos in Macau through phone betting.

　　Phone betting also prevalent in the Philippines

　　Outside of Macau, phone betting is also prevalent in the Philippine casinos. If Macau Gaming Bureau bans phone betting next week, the Philippine casinos may be beneficiaries, in our view. Macau stocks are now trading at 13.5x 2016 DBe EV/EBITDA, still near the high-end of historical trading range, which we view as expensive given more regulatory risks this year. Downside risks: smoking ban regulation may be legislated in 2H2016.