MACAU: THIS TIME IT’S DIFFERENT

Weekly placeholders mask weakness, not strength. May fizzles, up only 9%.

Well, we were wrong about May growth.  The Hedgeye model had been stellar up to this point so what went wrong?  There are 3 possibilities: 1) hold percentage was very low, 2) VIP volumes contracting faster than we expected, 3) May was a statistical anomaly. 

We suspect that hold percentage was low in the month but not low enough to justify only a 9% YoY increase in GGR.  Lower VIP volumes likely played a role.  Despite all the negative headlines regarding VIP, we were aware of liquidity issues only with a couple of junkets.  It’s possible the issues were more widespread.  The reality is that one month is a short period of time and even volumes can be volatile month to month. 

In any case, the two “placeholder” weeks this month actually masked weakness and not strength like we saw in April and previous months.  Thus, the last week showed unusually soft numbers but was really a catch up softer than indicated weeks earlier in the month.

Going forward, our model was already projecting a soft June with YoY growth of only 9-11%.  If there is a systemic problem with VIP, there could be downside even to that number.  Either way, June was unlikely to spark the Macau stocks and that’s still the case now.  May was the last near-term positive for these stocks and that didn’t quite pan out.

The Hedgeye Macau model has had a great track record in projecting Macau GGR so we’re absolutely sticking with it.  With that in mind, we move to the sidelines on these stocks.  We remain favorably disposed over the long-term but, lacking catalysts, the stocks could be volatile with downward bias.  Given some unique levers to grow market share, WYNN remains our favorite stock over the near term and given its quality as an operator, might be the safest.  LVS is a close second.