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THIS WEEK IN MACAU

Thoughts on March, the VIP outlook and market share, and how much growth is too much?  Negative catalysts seem to be piling up.

The near-term hurdles seem to be piling up for WYNN and LVS:  high investor expectations, sequential monthly slowdowns, less liquidity on the mainland, potential visa tightening, tough 2nd half comparisons, and VIP market share shifts.

VIP

Based on our statistical work, we believe tightening and sequentially slowing growth in China constricts the Macau VIP business.  We haven’t seen it yet, unless March was a major disappointment, but we did get the first, albeit very preliminary, indication that liquidity could be an issue.  One of the largest junket operators noted that some customers are asking for longer repayment terms.  This could be completely anecdotal and we will be researching this further.  However, this scenario would be a logical first step in a liquidity fueled VIP slowdown.

The Triads and VIP Market Share

The Macau media was all over the alleged association between a “known” Triad member/junket operator and LVS.  LVS quickly responded that there are no junket operators with known associations with organized crime and/or shady organizations that are “on the books”.  The Macau government is likely to back up this assertion.  We also don’t think the Nevada Gaming Commission will want to open up this can of worms so the direct impact of the allegation is likely to be contained.

The general consensus of people on the ground in Macau is that the US operators do business with “shady” junkets unofficially.  While the direct impact may be minimal, the controversy from the LVS/Cheung story may draw scrutiny to the US operators and force them to distance themselves from these junkets.  Moreover, the junkets don’t like the media attention either, which may lead them to move their business voluntarily to the non-American owned properties.  Either way, the pressure on VIP market share at the LVS and WYNN properties may accelerate as we can see in the chart below.

THIS WEEK IN MACAU - VIP Volume

March Revenues

There has been much debate about where March will shake out.  We think revenues will total around HK$14.0-14.5 billion, higher than the lowest estimate of HK$12.8 billion, but at the low end of consensus of HK$14.0-15.0 billion.  It didn’t help expectations that some analysts recently threw out projections of 60-80% versus our 52-57%.

So HK$15 billion would be great, right?  Well, not so fast.  I hate to bring up the dreaded V-word but the Chinese government has, in the past, tightened visa restrictions with less growth than this.  There has been very little talk in the investment community about visa tightening lately, but it is being discussed among the operators.