PWC raised some eyebrows with their growth projections. At least for next year, they may be low, and it’s hardly supply driven.
The main goal in our trip to Macau last week was to gauge the long-term growth potential of the Macau market. We already get weekly data and with our contacts, we think we have a good read on the near-term developments. We came away not only positive about current fundamentals but that the market may grow faster than currently anticipated. Our trip coincided with the PWC release of its Macau forecast which certainly raised a few eyebrows. PWC thinks the Macau market will grow at a CAGR of 24.7% over the next five years from the 2009 base. Of course, that includes roughly 50% growth for 2010 which is pretty much in the bag. Still, their 2011 estimate of 26% growth is pretty compelling. We think it will be closer to 30%.
Are we being too aggressive? We don’t think so. Even if the market doesn’t grow from the Q4 run rate (adjusted for seasonality), 2011 will still be over 13% higher than 2010. Our 30% projection assumes 2% monthly sequential growth, adjusted for seasonality, throughout 2011.
What about same store growth? Well, Galaxy Cotai will open in the spring and boost table supply by 12%, a substantial increase but well below demand growth. As can be seen in the following chart, our monthly revenue growth projection remains higher than supply growth in every month of 2011. To be conservative, we are not assuming any increase in visitation as a result of the opening of Galaxy which is probably unrealistic.
We remain most bullish on Wynn Macau due to recent market share gains, a clean operation, and a differentiated product. MGM also looks like a winner as its recent market share gains are sustainable and likely higher margin than the Street expects. MPEL’s City of Dreams (CoD) is probably most at risk when Galaxy Cotai opens.