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THE M3: MGM MACAU IPO, MACAU HOTEL OCCUPANCY, FERRY SERVICE

The Macau Metro Monitor. January 15th, 2010

 


MGM’S MACAU JOINT VENTURE MOVES CLOSER TO IPO marketwatch.com

The Macau casino joint venture between MGM Mirage Inc. and Pansy Ho has initiated a vetting process of investment banks to work on a Hong Kong initial public offering that could raise up to $1 billion.  Two Wall Street investment banks have sent representatives to meet with officials from MGM Grand Paradise, operator of the MGM Grand Macau, to discuss the flotation, according to local media.  The group would be the last of Macau’s six main casino operators to list shares in Hong Kong.

 

 

MACAU’S HOTEL OCCUPANCY RATE DROPS TO 78.4% chinaknowledge.com

Macau has seen its hotel average occupancy rate decline by 0.8% year-over-year to 78.4% in November 2009, according to the Statistics and Census Service.  The figures show that four-star hotels, which had the highest occupancy rates, had an average occupancy of 88.2%.  In November, the total number of available guest rooms in local hotels rose to 19,216, a 12.9% rise compared to the same month in ’08.  Mainland Chinese tourists accounted for 51.9% of the total, and tourists from Hong Kong accounted for a further 20.4%.

 

 

FIVE COMPANIES LICENSED FOR FERRY SERVICE BETWEEN MACAU AND HONG KONG macaunews.com.mo

A total of five companies have been licensed to provide ferry services in Macau for ten years, according to a statement from the Maritime Administration.  TurboJET, Yuet Tung, Chu Kong, Macao Dragon and CotaiJet have all been approved for operation.  A total of fourteen for ferry services between Macau, Hong Kong, and Guangdong province had been approved by the government.  Macao Dragon is the only company to have never before provided ferry services in Macau.  Three of the five new routes will connect the Macau Maritime Ferry Terminal in the Outer Harbor with Shun Tak Centre, China Ferry Terminal in Tsim Sha Tsui, as well as the SkyPier at Hong Kong International Airport.  The other two new routes are between Pac On and Tsim Sha Tsui as well as the SkyPier.

 

 

 




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TWO YEAR REVPAR TRENDS

With very easy year-over-year comps, we thought it would be instructive to look at 2 year comps as a gauge of the underlying trends.

 

 

It is no secret that RevPAR has been getting less bad.  Certainly, lodging stocks seem to reflect that trend.  It remains to be seen, however, whether the underyling demand is actually getting stronger sequentially.  Year-over-year comps are very easy.

 

The following chart tracks RevPAR, occupancy, and average daily rate on a two year comp basis.  Here, the trends are not so conclusive.  On the one hand, occupancy looks like it is on an upward trajectory.  However, the ADR trend is negative and RevPAR may be as well.  Certainly, the recent 3 week moving averages are not comforting, not even occupancy.  In fact, on a two year basis, weekly RevPAR declines eclipsed 30% in two out of the last three weeks and three out of the last seven.  Even on a one year comp basis, the the slope of the moving averages has turned down.  The coming weeks should be enlightening. 

 

TWO YEAR REVPAR TRENDS - lodging metrics 2yr 1.14


WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS

 

Our Financials Sector Head Josh Steiner looks at the relationship between initial unemployment claims and the unemployment rate:

 

The 444k initial unemployment claims figure this morning was up 11k from 433k last week (revised down 1k from 434k).

 

As such, the 4-week rolling average claims improved this week to 441k from 450k last week - an improvement of 9k, well ahead of the slope of 5.4k/week since March (9 months of data).

 

WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS - js1

 

The following chart shows why this metric is important to track.Over the last 20 years, unemployment begins falling in earnest once rolling claims break into the 375-400k range. At the 9-month trajectory of -24k/month we are 1.8 months away from 400k and 2.7 months away from 375k. As such, by the March/April timeframe we should be at a level where unemployment begins to fall steadily, which will put a long-term tailwind behind consumer lenders.

 

WE'RE NOW 1.8 MONTHS FROM A BIG TAILWIND FOR CONSUMER LENDERS - js2

 

For those wondering how to interpret a possible inflection in rolling claims should we see one in late January/February, we would suggest using a positive slope of 7.2k/week as an outer risk band. This is the fastest weekly rate at which rolling claims increased over a two week period since the trend of improvement began in March. Alternatively, in the absolute, one can use 475-480k as a near-term rolling upper limit based on the downward channel that's been in place since March.

 

Joshua Steiner, CFA

Financials


The Levy

“Drove my Chevy to the levy but the levy was dry

And them good 'ole boys were drinking whiskey and rye singin . . . ”

-Don McLean, American Pie

 

Our Financials Sector Head Josh Steiner had some insightful comments this morning on President Obama’s proposed bail-out levy on banks.  The idea of a levy made me think of Don McLean’s well known song, American Pie.  In contrast to the levy in that song, the Investment Banking Levy, is far from dry.

 

In fact, President Obama believes that he can raise ~$90BN from the Investment Banking Levy. The proposal is a 15 basis point, or 0.15 percent, charge on the excess liabilities of large institutions and would apply only to the those institutions with assets of more than $50BN. 

 

The levy is not a very egalitarian sharing of the monies still owed under TARP.  Obviously some banks borrowed less, paid back all they borrowed and so forth.  Also, other sectors, like the auto sector borrowed money and will not be subject to the Levy.  Regardless of whether it is fair, this could actually help President Obama on a number of levels.  First, it is $90BN that can be used against the deficit, which is a positive for the fiscal health of the United States. Second, the inordinate executive compensation of the large banks is a populist rally cry.  So to the extent that the masses are against gross and indulgent pay for bankers, this will improve President Obama’s approval rating on the margin, which obviously needs some help.

 

According to the most recent Real Clear Poll aggregate, President Obama’s approval rating is 47.7 percent, which is the lowest of his Presidency.  This is consistent with the Rasmussen Daily Tracking poll in which only 25% Strongly Approve and 46% Totally Approve of President Obama.  On the Ramussen Poll, these numbers are effectively the lowest of his Presidency.

 

While the Investment Banking Levy may help on the margin, clearly President Obama and the Democrats are looking at a potential world of electoral hurt heading into the midterms.  We are in the middle of creating our internal projections on the upcoming midterms, but President Obama’s approval is a sufficient leading indicator to suggest the direction of political power will shift in the United States Congress.

 

Currently, the most closely watched race is for Senator Ted Kennedy’s former seat in the Commonwealth of Massachusetts.  Recent polls are all over the map, with Democrat Coakley ahead by anywhere from 15 points to Republican Scott Brown ahead by one point.  A win for Brown would not only shift the power in the Senate, it would also be a dark omen for the Democrats’ chances of holding ground in the midterms.  In fact, even a close race in this liberal bastion is likely a bad sign.

 

Ultimately, the Democrats will likely retain the seat, but on some level it is hard to argue with Scott Brown when he responded to a question on CNN yesterday about sitting in the late Ted Kennedy’s seat:

 

“Well, with all due respect, it’s not Ted Kennedy's seat, and it’s not the Democrats’ seat, it’s the people’s seat.”

 

Indeed.

 

 

Daryl G. Jones
Managing Director

 


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