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After one day of meetings, it’s pretty clear that business in Macau remains strong.  Storytelling, mostly in the investment community, has emerged to justify the stock collapses, after the fact.  New visa restrictions, junket credit problems in some of the outlying China provinces, a forthcoming VIP decline, and other fears/rumors continue to surface.  However, we see no evidence to substantiate any of these concerns.  We understand that the stock market is a discounting mechanism and macroeconomic concerns are legitimate.  But as of right now, there seems to be little to be worried about in Macau other than the macro.  In other words, it’s macro time.

Even the table cap issue looks like a non-event.  Aside from the fact it is only a policy statement and not a change in law, concessionaires expect the cap to be quite flexible in terms of new properties.

We’ve got more meetings on Thursday, but the interesting takeaway so far may be the near term prospects for SJM, the stock.  In addition to strong market numbers for September and the coming Golden Week blowout, there appears to be a few company specific catalysts.  SJM management will be at G2E next week and will follow that up with a non-deal road show to New York, Boston, and London.  The meetings should alleviate investor concerns about near term trends.  More important, SJM is quite the free cash flow story.  We expect management will talk up the potential and probability for the company to significantly increase its dividend.  SJM can do this while still maintaining same store growth and unit growth with its project in Cotai.  In fact, given the free cash flow profile, SJM can finance a higher dividend and construction costs internally.  They have HK$14 billion in cash which will likely grow to HK$18 billion by the end of the year.

SJM looks timely and upside potentially huge given the precipitous fall in the stock.