So far so good on our 20% growth forecast for May in Macau. Here is some of the math behind it.
CALL TO ACTION
Macau stocks may rebound as May GGR continues to display acceleration from recent months. The 20% YoY growth forecast is based on our quantitative model with a little special sauce context thrown in, but it’s mostly the math. We believe that level of growth exceeds most sell side projections and investor sentiment. WYNN remains our favorite.
THE SETUP
We’ve been consistent with our belief that May growth will accelerate from March/April and allay the doom and gloom VIP fears. Not to say there aren’t some liquidity issues in the junket system. We’re probably seeing that with MPEL – rolling chip volume fell 20%+ in April and market share is down again here in May. However, the flow through of some side betting into the legitimate system has probably and certainly could provide the VIP cushion to stem some of the pressure. Mass growth, on the other hand, needs no push – volumes are terrific.
So how do we handicap May? If we assume year to date volumes continue and seasonally adjust May along with an extra Saturday, growth should approximate 20% assuming a normal hold percentage. Looking at it another way, May faces one of the easiest comps of the year as can be seen below. Moreover, May’s 2 year and average comp (average of 1 and 2 yr) are the easiest of the year. Given the inherent volatility of this business, looking at last year’s comp is not enough analysis.
We expect the tenor and investor sentiment around the Macau gaming operators to improve as senior management teams, sell-side analysts and investors converge on Macau for G2E Asia at Venetian Macao on May 20-22.
Month to date, average daily table revenues are 16% above the comparable period of last year. Going forward, the comps appear to ease as can be seen below. While this week’s comp looks tough at 22%, that number comped off of a -6% base. Week 4 is easy on a 1 year basis and moderate on a 2 yr basis. Based on these numbers, it appears that growth should accelerate in the back half of May.
CONCLUSION
The Macau gaming stocks have bounced off the recent lows achieved on 4/29 (see our note “WE’VE BEEN PLACEHOLDERED”) but they remain well off their highs. If we’re right on May, all the Macau stocks should do well. We’re partial to WYNN because we think they have a unique ability to garner more share, particularly on the VIP side if they are willing to improve their junket offering – specifically in the credit area where Wynn Macau advances commissions only on a 15-30 day basis versus the competition at 2-4 months.
