There is quite a bit of new supply entering the Macau market in 2009. Besides MPEL's City of Dreams (CoD) which opened June 1st, US investors do not seem very focused on the supply picture. That's typical, since the remaining new builds for 2009 are owned by non-US listed companies.
The most impactful property post-CoD will be SJM's Oceanus. SJM is already knocking the cover off the ball in terms of recent market share gains. Add to the SJM portfolio an attractive Mass Market casino, strategically located next to the Macau Ferry Terminal. Unfortunately for LVS's Sands Macau, Oceanus is situated between Sands and the Terminal. It is our understanding that SJM will provide covered and air conditioned moving walkways from the Ferry to Oceanus. Location was a huge competitive advantage for Sands and it soon will be transferred to Oceanus.
Here are some details on Oceanus:
- Obscures Sands from the Ferry Terminal
- 280 Mass tables vs 350 at Sands
- Almost purely a Mass property
- Billed as a regional locals property targeting ferry customers from Hong Kong and Guandong Province
- Property to open in late 2009
Based mostly on the impact from Oceanus, we are now projecting a 20% decrease in 2010 EBITDA at Sands to $169 million. We believe the Street is projecting well north of $200 million. Sands is vulnerable because of its location and focus on the Mass market. We calculate that over two-thirds of its EBITDA is derived from Mass play. The Mass market has been stable and is likely to grow in the mid single-digits as Beijing keeps a tight grip on visitation. However, Oceanus is not the only new supply. L'Arc and City of Dreams (another large Mass property) will contribute to an approximate 25% increase in Mass supply from 12/09-05/09 and a 20% increase for all of 2010 as seen in the following chart. Not good for the other LVS Mass Market property, Venetian Macau, either.
LVS faces many near-term hurdles including covenants in both credit facilities, a slow start at Sands Bethlehem, and the Las Vegas doldrums which are not over. Add Oceanus to the list and don't underestimate the potential negative impact to Sands.
