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    The Call @ Hedgeye Plus

    Our favorite, high-conviction stock ideas and CEO Keith McCullough’s Macro overlay. Exclusively on Hedgeye TV.


As you can see my last few posts, I’m getting positive on Macau. Look, the near term is challenging, no doubt, and the Q3 earnings releases won’t look pretty. However, the intermediate and long term fundamentals are unmatched anywhere else in gaming. There is significant excess demand and Beijing controls the spigot through visa restrictions. If you believe, like I do, that Beijing will be supportive of controlled, moderate growth than you have to be positive on Macau and the Macau stocks. My top down industry perspective is buffeted by Keith McCullough’s macro analysis. Research Edge is positive on China!

Timing and how to invest are the issues. The timing of Beijing’s next move is not clear but I’m fairly certain it will be a positive one. In the meantime, the monthly numbers will not look great. To me, that is not important. The other tricky part is how to play Macau from a public equity perspective. Each company has its issues: WYNN is losing market share, LVS has liquidity issues, MGM Macau is less than 5% of MGM’s EBITDA, and all three have Las Vegas exposure. MPEL will likely report a disastrous Q3 but is a Macau pure play and may be interesting after the quarter.

  • In terms of market share, the charts to the right analyze the sequential change in market share for the major properties/players by total baccarat revenue and VIP turnover. We are looking at VIP turnover separately because small changes in hold percentage can swing revenue dramatically. Turnover is a better indicator of underlying demand. Additionally, with escalating junket commissions as of late, it is instructive to examine the impact.
  • The notable Q3 deviants from Q2 on the positive side are the LVS properties; Sands and Venetian. Junket commissions at these properties are now among the highest in the market which will show up negatively in the margins. MGM also raised junket commissions and gained share sequentially. On the downside, MPEL’s Crown and Wynn lost meaningful share. Crown’s junket partner, AMAX, pulled back on credit relative to Q2. Wynn has been stubborn on its commission rates, rightly or wrongly, and lost share in Q3. Q3 revenues could disappoint when WYNN announces Q3 earnings in a few weeks.
  • Looking at total baccarat revenue market share, including VIP and mass market revenues, the sequential trends were similar to VIP turnover, with a few, subtle differences. Wynn Macau’s revenue share did decline but less than its share of VIP turnover. Wynn held at about its average VIP percentage but Crown and Galaxy’s hold percentage was much lower than average in Q3 which drove the market hold percentage below average. Wynn’s mass market revenue share was roughly flat Q2 to Q3. LVS held close to average so VIP turnover drove its sequential increase in market share.