MACAU OBSERVATIONS

From a quick trip to Macau 

Overall

  • No softness yet but some concessionaires are definitely more conservative on the near term VIP outlook
  • Part of that is the hold comparisons which are difficult through January
  • Consensus is that there are no real structural problems with credit and junkets but the collapse of a smaller junket is possible which would spook the market but not really impact the overall business
  • LVS may spark a junket war in Macau

Wynn

  • Mass business still strong - we think they may be up 30% YoY November MTD
  • VIP business is slow for them
  • Venetian/Four Seasons already very aggressive on junket volume discounts and commission advancement – this will impact Wynn
  • For now Wynn is staying put on the junket credit side and commission levels
  • Wynn is in a little bit of a pickle because if they still don’t want to sacrifice margin they are likely to continue losing VIP share

SJM

  • More defensive should VIP go under pressure
  • Upside in Mass is also limited due to lack of hotel rooms
  • SJM could pay HK$1 annual dividend (8% yield) and still fund Cotai 

MPEL

  • Holding could be as low as 2.5% November MTD
  • We think they are still well over US$100 million in EBITDA midway through Q3 despite the bad hold
  • Worried about Venetian/Four Seasons junket aggression.  Deciding whether to match or hold steady.  This is their number one concern.
  • US$200 million quarterly EBITDA run rate even with the low hold and potential margin compression from increasingly competitive environment
  • It is my sense that management is more optimistic than US$200 million per quarter next year
  • Aside from the junket pressure, there are numerous headcount reduction opportunities next year so margins are still likely to be higher
  • Still evaluating an expansion of CoD – retail, new premium Mass space, and new high end suites
  • Premium Mass segmentation may insulate them from the opening of 5/6

LVS

  • Some concern that the interior of 5/6 will not be “real Chinese” enough
  • Connecting walkways will be constructed by the government and not LVS – so all connections will be done at the same time but not in time for the opening
  • Neptune opened 2 weeks ago and is doing well
  • Neptune could impact November – sounds like Neptune has a pretty sweet deal with incentive triggers at volumes well below market averages
  • Already expanded junket commission advancement to 2 months for some junkets