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After speaking with some contacts in Macau, we’ve got some more color on the softness.  It appears that Mass hold percentage may have been low in February.  We would attribute this in part to the smoking ban.  During busy periods such as Chinese New Year (CNY), it makes sense that table productivity would go down as players take breaks to smoke or smokers can’t get a seat at the table.  Velocity of play goes down which would reduce the hold percentage.  On the VIP side, we’re hearing that volumes were weak and hold was fairly normal.  This would suggest that the China corruption crackdown is having an impact although some disagree.  On a positive note, we’ve heard that non-gaming spend was quite high given the Mass crowds.

Going forward, there seems to be some opposing factors.  On the positive side, there is some speculation that some big VIP players stayed away during CNY because of the crowds.  If this is true, we may not see as much of the typical post CNY slowdown.  However, on the negative side, there is news of an important China central government figure visiting Macau this week which usually means some junkets and players will stay away.  Either way, we’ve had about 4 weeks of disappointing numbers.  We think the softness could continue, mainly due to the corruption crackdown, for a few months but we remain bullish on Macau over the intermediate (trend) and long-term (tail).

Here are some other tidbits we picked up from our contacts:

  • Hainan Island casino – at least one sell side analyst highlighted this in a note as a potentially big competitor for Macau.  Well, we heard this morning that the government already closed it down.  The bear thesis of China allowing casinos outside of Macau will have to be shelved for now.
  • Taiwan – there is speculation that the Taiwanese investigation into an MPEL junket is the cause of MPEL’s market share dip in February.  While we will concede that it may have had an impact, we think it was slight and that low hold explains the majority of the market share decline.  We estimate that Taiwan generates 7-8% of Macau’s GGR. 

As the chart below shows, CNY 2013 ADTR has been disappointing.  Compared with CNY 2012 (Jan 16-29) ADTR and also YoY (Feb 1-19), CNY 2013 (Feb 1-17) ADTR only grew in the mid single digits.  We are currently projecting YoY growth of -2% to +4% for the full month of February.