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Takeaway: 200 tables on average could even be more than what the gov’t is willing to allocate – investors won't like that

300-500 tables per new Cotai casino looking increasingly unlikely

A reliable contact in Macau has indicated to us that the new Cotai projects may be allocated only 150 tables or less on average each.  The smaller than expected allocation would likely disappoint some investors.  Estimates of up to 550 tables for Wynn Palace and 400 for some of the other new Cotai properties have been offered.  WYNN management has been particularly bullish regarding their potential allocation.

In public commentary from both the Macau government and State officials from China including President Xi Jinping during his Macau visit, it has become clear that diversifying the economy away from gaming is a clear public policy goal.  We believe this is no longer just talk – active measures are being taken to achieve this goal.  A lower table allocation is certainly one measure.

With Galaxy Phase II opening in Q2 (mgmt expecting up to 500 tables), we should get a feel for numbers soon.  Galaxy may obtain one of the healthier allocations since they're a 1st mover and have built a solid relationship with the Chinese government. If they are allocated significantly below what is expected, it could be an ominous sign.

Investors would likely react negatively as projections tend to be made on a revenue per table basis.  Thus, fewer tables equates to fewer revenues.  We don’t agree with this modeling approach and would not necessarily view a 200 table allocation as negative based on current demand trends, at least over the short term.  After all, we expect cannibalization so table migration from existing properties should somewhat alleviate the problem of too few tables at new properties.  Moreover, dealer costs will be subdued.

However, if market demand improves, gaming revenue growth could be impeded by short supply.  Of course, this may be what the government wants and relatively small table allocations should be a signal that government is serious about curtailing gaming growth or at least slowing growth rates below that of non-gaming sources.