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MACAU: A BIG CNY DISAPPOINTMENT

We’ve got the numbers for the first half or so of the month and they’re not pretty.  Despite the favorable calendar shift of Chinese New Year (CNY) into February this year, Macau gross gaming revenues (GGR), could actually fall YoY.  With 17 days in the bag, we’re now projecting February GGR of $23.0-24.5 billion which would represent growth of -2% to +4%.  These soft results have to be a disappointment to the Macau bulls who had been calling the market as essentially impervious to the smoking ban and the junket crackdown by the Chinese government.

So why are the numbers so weak?  Last February was actually quite a strong month with volumes higher than January despite CNY falling in January.  We believe the smoking ban may have been more impactful on table productivity during the busy CNY period.  We’ve also heard that VIP hold may have been a little low although there is no hard evidence of that.  Finally and most importantly, we think there is a government crackdown on corruption in China which is impacting the junkets.  Some specific junkets may be targeted.  We found this article interesting and relevant:

http://www.bloomberg.com/news/2013-02-17/china-new-year-retail-sales-growth-slows-on-frugal-drive.html

MACAU: A BIG CNY DISAPPOINTMENT - m1

In terms of market share, Wynn is making a surprising breakout although most of it is likely hold related and comes at the expense of MPEL.  Sands China is having a strong month and we expect that trend to continue absent any hold fluctuations.  Galaxy’s market share is back up after a few disappointing months while MGM and SJM are posting shares below trend. 

Following the disappointing last half of January and February’s results so far, we believe Q1 estimates could be at risk.  However, while we fully expected the junket crackdown to have a material impact on Macau’s VIP numbers, we maintain our belief that the impact will be short lived, 2-3 months.  Our best guess is that the crackdown, while real, is window dressing to show the populace that the new government is serious about combating corruption.

MACAU: A BIG CNY DISAPPOINTMENT - m2