CALL TO ACTION
Macau stocks appear ripe for a rip to the upside, potentially aided by short covering. The opening of Galaxy Phase 2 yesterday could provide that catalyst. Our contacts (competitors included) praised the new product and the well executed opening and noted big crowds and importantly, mostly unaffected traffic at existing Cotai casinos. We remain focused on the underappreciated degradation in the base mass business but the near-term trade could be higher given the horrid investor sentiment overall and capacity concerns specifically.
GALAXY PHASE 2
Yesterday’s opening of the 2nd phase of Galaxy Macau appears to have been a success. We typically don’t place too much emphasis on the initial performance of new casino openings and we won’t have a good gauge on the success of Phase 2 or its impact on Macau for several months. However, with the smooth opening, product quality and strong traffic, the new property could allay some near-term investor fears that the upcoming supply growth will be entirely cannibalistic. More importantly, the other Cotai properties generated consistent traffic flow for a Wednesday, providing at least a glimmer of hope that Phase 2 can grow the Macau market.
Here are some of our takeaways following conversations with Macau contacts:
- Phase 2 contains 230 tables
- VIP rooms could be the nicest in town
- Ritz Carlton rooms are the nicest in town
- Peninsula properties may have been a little slower but no discernable drop off in traffic flow at any of the Cotai properties
- Around 100k people flowed through the property with good gaming activity
- The former Grand Waldo next door reopened as Broadway and it too experienced a strong opening – 38 tables in total
- Its uber premium mass gaming area, which is not open yet, could be incremental for Galaxy Macau
A successful opening of Phase 2 looks in the cards and could spark all of the Macau stocks, including HK.0027. However, keep a trade a trade. The ongoing potential and market impact of Phase 2 won’t be known for several months. Moreover, even a consistent performance of the new property may not be able to deter the deterioration in the high margin base mass segment, which is not well understood nor projected by the Street, in our opinion.