CALL TO ACTION
It should come as no surprise that the Hedgeye Mass Tracker predicts that mass revenues grew in the high single digits YoY for Q3. The Tracker already suggested slowing mass growth in July and August and while September growth picked up sequentially, Q3 clearly decelerated from surprisingly strong Q2 mass revenue growth. So should we be concerned? Not on the margin. Analysts already are projecting decelerating mass growth – fairly in line with our estimates over the near term – but they’re also way too conservative on VIP growth, in our opinion. Moreover, high single digit mass growth is a very strong pace and now since it’s all same store sales, EBITDA growth should be accelerating. Remember, MGM Cotai is not opening until Q1 which will boost same store growth and profitability in Q4 for the other operators. Even when MGM Cotai opens, it’s not a huge capacity increase given the existing supply. Finally, the typhoons likely negatively impacted mass revenue growth in Q3, so the numbers could’ve been better.
So with mass growth still solid and VIP continuing to blow the doors off, what’s the play? We still like WYNN because of their high VIP exposure but also because Palace still has room to ramp. Even on the mass side, Wynn’s properties seem to be outperforming recently, particularly in premium mass which is a bigger part of their overall mass.
Q3 MASS TRACKER RESULTS
Based on observational and visitation data, the Hedgeye Macau Mass tracker suggests mass revenues grew 7-10% YoY in Q3. The midpoint is slightly lower than the adjusted government figures (~+9%). We believe mass revenue growth was impeded somewhat by the typhoons earlier in the quarter. Indeed, most of our observational data indicated a worse performance in the visitation driven base mass segment while premium mass seemed to outperform. However, even without the typhoons, it’s unlikely that Q3 mass growth would’ve outpaced Q2’s 14% as the comp was much tougher - Q2 faced a comp of only 5% versus Q3’s 10%.
PREMIUM MASS/BASS MASS OBSERVATIONS FOR Q3
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OVERALL – Same-store observed premium mass appeared to outperform base mass. The overall deceleration is partly influenced by harder comps. As for the new properties, there was not much change in table metrics at the Parisian while Wynn Palace outperformed in the premium mass segment.
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WYNN – The company is likely crushing it on VIP and while it’s possible that junket players are crowding out mass players from the hotel rooms, premium mass seemed to hold its own, particularly at Wynn Palace. Premium table minimums hit a record high at the property. Not really designed to be a base mass property, Wynn Palace still seems to be struggling to attract these higher margin customers. Construction surrounding the property certainly hasn’t helped. On other hand, the observational metrics for Wynn Macau appear to signal a little higher base mass business – one of the few decent Q3 performers in this segment.
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LVS – As the base mass leader, we think the Sands China properties struggled in Q3 and it might put the quarter at risk. On the mass side, there no discernable positive trends at any of the Sands properties.
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MLCO – Macau Studio City (MSC) remains the bright spot in the portfolio. The property seems to be growing its base mass business sequentially and YoY and premium mass is outperforming. Similar to most of the other properties in the market, City of Dreams is struggling in base mass, and in its more important premium mass segment, results are a little soft.
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MGM – Weakness in both base and premium mass segments
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Galaxy – Galaxy Macau has been aggressively cutting premium mass table bet minimums and observed betting down significantly in Q3. However, the offset has been about 10% more tables in play YoY.
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SJM – No change in premium mass play but substantial fall in its base mass segment
CONCLUSION
Overall mass growth could disappoint, although with the release of the government figures for Q3, expectations for mass growth have been ratcheted down. Estimates for some of the Macau companies have escalated so earnings season could be a little choppy. We think WYNN should post the best earnings release and their October outlook should be favorable.
