MACAU SUPPLY RELIEF

There are three major tenants to the Macau short thesis: excessive visa restrictions, dissipating junket credit availability, and too much supply. Unfortunately for the bears, the recent deltas for all three are positive.

As we wrote about last week, mass market visitation appears to have ticked up in recent weeks, possibly indicative of a loosening of the visa restrictions. Even if that ends up not being the case, we believe Beijing will indeed loosen later this year ahead of the new Macau Chief Executive taking over. On the credit side, we don’t see any evidence that more credit is being offered to the VIP players. However, we are only 5 months away from a potentially positive year-over-year comparison in the Rolling Chip business. We can see the light at the end of the tunnel.

This weekend we got a favorable supply catalyst. SJM, controlled by Stanley Ho, announced the company would no longer pursue a mega casino hotel complex in Macau. This should ease the supply concerns considerably, leaving only MPEL’s City of Dreams (spring 2009) and WYNN Encore (earyl 2010) as the only definitive supply increases in the market.

Macau should be looking more and more attractive to investors.