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It's difficult to predict the future but the Macau market participants cannot even predict the present. What's going on with the visa restrictions? Ask ten different people, get ten different answers.  Our best guess is that Beijing is constantly tinkering with the goal of restricting market growth to the mid-to-high single digits, in-line with China's GDP growth.

We think, by now, Beijing has a pretty good feel for how much to turn the spigot to drive the desired growth in Macau. The days of 15% growth are over but controlled mid-to-high single digit is likely. Given the excess demand that Beijing must restrict to maintain moderate growth, Macau EBITDA likely warrants a higher multiple.  However, over the next 18 months, Mass table supply growth will be significant (see chart below) and we doubt Beijing is targeting same store growth.  Thus, same store growth in the Mass segment will be decidedly negative.

BEIJING WON’T OFFSET MASS TABLE SUPPLY INCREASE - macau mass market table growth 

The market share wars are likely to escalate.  As we found out during our trip to Macau in late June, some properties are beginning to offer rebates to players of between 0.3% and 1.0%, depending on whether there is a buy-in amount.  Q2 margins should look worse on a sequential and YoY basis for Q2 2009.  As can be seen in the following EBITDA chart, margins are already in decline.  The promotional environment will only worsen, putting even more pressure on margins through mid 2010. 

BEIJING WON’T OFFSET MASS TABLE SUPPLY INCREASE - macau ebitda margins 

The Mass properties are particularly at risk:  LVS's Venetian and Sands, Wynn Macau, and MGM to a lesser extent.  The Sands must also contend with SJM's Oceanus opening up in late 2009 which will be as direct of a competitor as there can be.  We wrote about this in our 6/28/09 note "OCEANUS TO SINK SANDS".  On the other hand, City of Dreams hasn't stolen many customers from Venetian which is good for Cotai but a negative for the Peninsula including Wynn Macau. 

Those clinging to the great Beijing savior might be disappointed.  Yes a new Chief Executive is taking over late this year.  While there may be some incentive for Beijing to provide a bit of a tailwind, a 25% increase in visitation is highly unlikely.  Same store revenues are going lower.

The only potential winner here is the guys adding new supply, particularly MPEL with City of Dreams and SJM with Oceanus.