Share price running ahead of fundamentals. Despite repeated disappointments on

numbers, gaming share prices have been relatively resilient due to hopes of recovery and

reopening in stages. We are still positive on the longer-term prospects in Macau, but the

transition towards a more sustainable mass-driven market will not be smooth, and the VIP

segment is under serious pressure. We see near-term risk to the share prices amid high

investor expectations.

Four structural changes. (1) Regulatory tightening: The Chinese government takes a

clear stand against overseas gambling and cross-border currencies movement. Unlike in

2010-14, when the central government had targeted corruption, this time around, Beijing is

targeting gambling activities. This hurts big players demand, affects junket debt collection,

and blocks funding channel for big players. (2) VIP system is under structural pressure:

We believe the VIP system will substantially scale down over the next few years, dragging the

pace of recovery. (3) Base mass to lead recovery: Without a healthy VIP junket system,

casinos would lose one of the key sources to grow their premium mass players, as these

players lost one of their major channels to move money (~30% of their gambling funds go

through the VIP system). A base-mass-led recovery without any meaningful uptick in money

spent would lower casinos’ profitability, and the new supply would take the market longer to

absorb. (4) Lower FCF generation: Slower headline growth, weaker FCF generation, and

increased uncertainty over license terms will collectively put pressure on the EBITDA multiple

in 2021, even if GGR were to gradually return to normal.