MACAU: A SENSE OF OPTIMISM

LVS, WYNN, and MPEL all held earnings conference calls recently. While certainly not positive in general, the managements all conveyed a sense of optimism with regards to Macau. So why the optimism? Macau certainly appears to be struggling. January revenues fell 19% and the market will likely suffer a string of double digit monthly declines. However, the declines relate more to very difficult comparisons as the junkets flooded the market with credit in the first half of 2008 and Rolling Chip volume soared.

That level of credit is not likely to be duplicated any time soon. Meanwhile, visitation continues to rise despite tighter visa restrictions now versus last year. There is still excess demand. And there is reason to believe those tighter restrictions could be loosened. I don’t necessarily share the belief of an imminent loosening. However, we’ve maintained that Beijing could offer this tailwind to the new Chief Executive when he takes over late in the year.

Here are some excerpts from the conference calls:

MPEL

“Though the market is currently being impacted by various external factors, our outlook for Macau remains robust. We are confident that this is just the early innings in terms of the profitable development of the market.” – Lawrence Ho

“A reduction in the short term rate of growth in [real] supply in Macau will allow the city's infrastructure to catch up with visitor growth.” – Lawrence Ho

“I believe that the worst days of Macau were probably behind us in December. And I think so far if you look at stats in January sequentially, January has been up on December and so far for us at least February is up on January again in terms of rolling chip volume. So we're pretty pleased” – Lawrence Ho

“Hong Kong, Macau and the Guangdong Province government will be jointly propositioning the central government to open up the whole region as one regional destination” – Lawrence Ho

LVS

“Visitation to the properties has been strong with Venetian Macao enjoying its greatest visitation on record with over 6.7 million people visiting the property during the fourth quarter. That visitation drove a healthy mass play in occupancy, as well as record slot play and hotel revenues during that quarter” - Brad Stone

WYNN

“We’ve had decent volumes particularly at weekends and over the two holiday periods that we experienced in January and February. Our table game to market share is positive, it’s over 17%. We’ve had some success stories in our slot program which is ahead of last year, retail is ahead of last year so it isn’t all doom and gloom” – Ian Coughlin

“Business in China is far more optimistic scenario even thought the economy in China has been touched as all countries have by what’s going on in the world today. Our businesses, EBITDA is off by 10% to 12% over there but that’s on a very big number to begin with and I’m happy to say that we’re very comfortable” – Steve Wynn

Yeah I know, management teams always try and paint a pretty picture. I’m as skeptical as they come but I do sense some real optimism here. We are becoming more optimistic for the following reasons. The Chinese economy may not be growing as fast as it was but it is growing at a nice clip. Second, the visa proposal outlined by Lawrence Ho above is very comprehensive and very positive. Of course, Beijing is ultimately driving the car. Finally, comps are artificially high but ease considerably in the second half of the year. Any loosening of the visa restrictions could turn EBITDA comparisons positive due to the high profitability of the mass market business.

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