Macau gaming sector's revenue climbed 25.4% in March

Check out its multiple growth drivers.

According to Maybank Kim Eng, Macau’s gross gaming revenue has set yet another record in March with MOP31.3b, up 25.4% YoY and 15.7% MoM. 

This beat Maybank's earlier projection of 24% YoY growth, which was 1.4ppts lower than the actual. Judging by the numbers, it appears that daily run rates have accelerated faster than expected.

Here's more:

As it is, current daily run rates are around MOP1b vs last year’s average of MOP833m. 

Multiple drivers. A better Chinese economy as evidenced by the improving PMI, coupled with infrastructure developments such as the extension of a high-speed rail link with China, are driving Macau’s GGR growth.

Visitor numbers, which are highly correlated to mass market gaming revenue growth, have also shown signs of pickup in February with 11.5% YoY growth.

VIP segment in the limelight. Increased minimum bets and higher spending are enhancing player quality, boding well for the VIP segment. Based on the current growth trajectory, we estimate that this segment posted ~23% YoY growth in March, marking a strong comeback.

This is a positive development for the gaming sector, given that the VIP segment accounts for 68% of total industry revenue in 2012. 

Compelling valuations, maintain Overweight. We maintain our Overweight call on the sector. If the current GGR growth rate is sustained, this would warrant a re-rating, not to mention further positive earnings revisions that should drive share price performance.

The sector trades at average valuations of 17x PER and 12x EV/EBITDA, which still look cheap relative to the Hong Kong/China consumer discretionary sector. It also offers strong margins, higher growth and a yield on selective counters.

Our top picks are Sands China (1928 HK TP HKD 42.10) and Galaxy (27 HK TP HKD 39.70).