Union Gaming Research publishes company research and analysis on the global gaming industry.  Our research analysts continually identify and analyze financial information and trends that affect the industry.

Macau 4Q12 / 2012 GGR recap and thoughts

January 15 2013

4Q12 recap - Macau’s gaming regulatory body, the DICJ, has published detailed 4Q12 and 2012 gaming data this morning. We analyze that data herein. As already gleaned from the monthly statistics, total GGR during 4Q12 was MOP80.8bn (+10% y/y and +8% sequentially). This included VIP GGR of MOP54.8bn (+3% y/y and +7% sequentially), mass tables of MOP22.5bn (+31% y/y and +11% sequentially) and slot machines of MOP3.5bn (+15% y/y, +11% sequentially). We estimate that win / table / day in 4Q12 was MOP154,747 (+7% y/y and +7% sequentially), while win / slot / day was MOP2,291 (+10% y/y and +13% sequentially).

2012 recap - Total GGR during 2012 was MOP304.1bn (+14% y/y). This included VIP GGR of MOP210.9bn (+8% y/y), mass tables of MOP80.0bn (+33% y/y) and slot machines of MOP13.2bn (+16% y/y). We estimate that win / table / day in 2012 was MOP146,759 (+8% y/y), while win / slot / day was MOP2,174 (+6% y/y).

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New greenfield Macau project files offering circular

January 09 2013

This past Saturday (5 January 2013), Paul Y. Engineering (577 HK) filed an offering circular for a HKD3,200mm (USD411mm) capital raise in the form of HKD800mm (USD102mm) in new shares and another HKD2,400mm (USD308mm) in convertible bonds. The purpose of the capital raise is the acquisition of Falloncroft SPA and subsequently development of Falloncroft’s USD800mm boutique premium mass market-focused casino, known as Louis XIII, at the south end of Cotai, as had been previously announced. Net proceeds would be HKD3,072mm (USD395mm), with an upsize option (shares and convertible bond) for an additional net HKD1,536mm (USD197mm), and a contingent placing of another net HKD1,536mm (USD197mm) in convertible bonds, that would effectively constitute the entirety of the development cost if the upsize and contingency were exercised.

As we wrote back in September 2012, the entire project budget is approximately USD800mm, of which nearly half would be accounted for by the above share and convertible bond issuances (or effectively 100% of the budget in the event the deal is upsized and the contingency is exercised), with the balance accounted for via debt financing outside this transaction. We believe the group already has access to a USD300mm credit facility.

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Macau smoking ban: our math suggests a non-event

January 04 2013

We have analyzed the potential impact of Macau’s partial smoking ban based on known mainland Chinese smoking behaviors and conclude that there will likely be very little (if any) negative associated impact. Even when using a set of punitive assumptions, we believe the worst-case-scenario implies no more than a 40bps impact on 2013 GGR growth.

Profile of a typical Chinese smoker - According to the Global Adult Tobacco Survey released in 2010, 45% of Chinese men and 2% of Chinese women are daily tobacco smokers. Separately, according to data released by The Lancet (medical journal), among those who smoke daily, Chinese men and women go through 16.6 and 12.8 cigarettes, respectively, per day. Assuming the average person is awake for 17 hours per day and it takes 4 minutes to smoke a cigarette, it means that the average Chinese man and woman spends 1.77 and 0.06 minutes per hour, respectively, smoking cigarettes. This equates to the average man spending an average of 3% of each waking hour smoking, and women spending just 0.1% of each waking hour smoking.

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Macau round up: Border gate & rail nearly at capacity

January 02 2013

Border gate bursting at the seams - Yesterday marked the start of mainland China’s three-day New Year holiday (1st - 3rd January). When coupled with the opening of Guangzhou-Zhuhai Intercity Railway on the previous day, the Gongbei / Macau immigration checkpoint recorded 280,000 total crossings. Macau authorities estimate there will be over 800,000 total crossings during the three-day period. To cope with the crowds, the China immigration facilities activated their contingency plans, which entailed opening all inspection channels and assigning 90% of them for Mainland residents. We note that the immigration facilities on the China-side were operating near peak capacity (stated maximum daily throughput of 150,000 persons in each direction) with 280,000 total crossings out of a theoretical maximum of 300,000. This could therefore put increased pressure on Chinese government to complete the immigration building expansion project that will take maximum daily throughput to 350,000 persons (+133%) in each direction. While no official pronouncements have been made, we continue to believe that construction is on track for the expanded facilities to be operational by Chinese New Year on 10 February 2013.

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Macau smoking ban; our observations on day one

January 01 2013

Yesterday, Macau’s smoking ban on 50% of casino floors went into effect with all casinos appearing to be in compliance. The casinos we observed have all employed 4-meter-wide buffer zones to separate clearly delineated smoking and non-smoking sections, as opposed to the other options available in order to comply with the law, which include the much more intrusive and costly options of: 1) upgrading HVAC systems to create walls of air, or 2) the construction of physical walls. In our opinion, the Cotai operators are generally in a better position to more efficiently create non-smoking zones, although we believe that initial fears of several hundred basis points of negative revenue impact across the entire market are likely overblown.

We walked every flagship casino floor yesterday and noticed a customer preference for smoking tables, although only a minority of customers was actually smoking. That said, we believe there are enough smoke-friendly tables currently in the market to accommodate patrons who wish to smoke during all but the busiest of periods (e.g. Chinese New Year or a holiday weekend).

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Macau all-time record GGR in December; up 20%

January 01 2013

December GGR +19.6% - Macau released December gaming revenue data this afternoon. GGR grew by 19.6%, to an all-time record of MOP28.2bn (USD3.5bn). This was inline to slightly above recent expectations for mid / high teens growth during the month. For the full year 2012, GGR was up 13.5%.

Daily GGR eclipses MOP900mm - During December, daily GGR was MOP911mm (USD114mm). This, of course, was the highest daily GGR on record, besting October’s daily GGR of MOP893mm by 2% despite not enjoying the benefit of a major gaming-centric holiday like Golden Week.

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Guangzhou-Zhuhai Intercity Railway opened today

December 31 2012

As of this morning, the first phase of the Guangzhou-Zhuhai Intercity Railway became fully operational with the completion of the final 23 kilometer section to the Gongbei (Macau) terminal station. We visited the newly opened terminal station today and rode the train. With the railway completely open between Guangzhou and Zhuhai’s Gongbei, the journey now takes between 67 and 82 minutes, depending on how many station stops a particular train makes, as compared to a 2+ hour bus ride previously. Ticket prices range from RMB 70 to 90 (~USD 11 to 14) for a one-way ticket in 2nd class and 1st class, respectively. This compares to about RMB 60 (~USD 10) for a one-way bus ticket.

The railway opened to little apparent fanfare and only limited media exposure. Despite this, we estimate trains were running at 40%+ capacity today from Guangzhou to Zhuhai and we expect occupancy to increase significantly over time (on our previous journeys we noticed nearly fully occupied trains between Guangzhou and Zhuhai North station). Currently, there are 25 scheduled trains in each direction per day, with another 10 “stand by” trains in each direction that can be added depending on demand. Each scheduled service has eight cars per train and up to ~100 seats per car with a total seated passenger capacity of 631 per train. Additional tickets can be sold for standing passengers if all seats are sold out. The railway’s hours of operation (7am to 11pm) roughly map the opening hours of the immigration facilities (7am to midnight).

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Macau round up: Li Gang to be Beijing’s top representative in Macau; Japan election update

December 17 2012

According to the South China Morning Post, after over a decade of service, 64-year-old Bai Zhijian is going to step down as the chief of the Central People’s Government Liaison Office in Macau. His position will be succeeded by Li Gang, the current deputy director of the Hong Kong Liaison Office. Li has been in the Hong Kong office for nine years and will step up as Beijing’s top representative in Macau sometime early next year. While the “chief” posts are usually assigned to Central Committee members, it is believed that Li’s experience in handling complex issues in Hong Kong has equipped him well to run the Macau office.

Recently the current chief of the Macau Liaison Office, Bai, commented that he does not expect Beijing to change any policies regarding Macau (i.e. there is no contemplation of punitive actions). In addition during the 18th National Congress of the Communist Party of China, incoming Macau chief Li reiterated that Beijing's policies towards its SARs (i.e. Hong Kong, Macau) will remain unchanged.

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Entertainment “casino” operating at Sanya resort

December 14 2012

We believe that a casino-like venue has quietly begun operating at the Mangrove Tree Resort in Sanya in China’s Hainan province. It is operating on a trial basis, and is not a casino in the traditional sense of the word. Rather, it is a very low stakes, non-cash (prizes only), entertainment venue that allows select customers to play table games that are found in typical Asian casinos. We believe that such a venue might best be viewed perhaps as a gift from the government in an attempt to allow Sanya resorts to keep cash flow in the black as occupancy at some of the higher-end resorts in Sanya remains quite low, likely resulting in net losses.

We believe this represents a headline risk to Macau and nothing more - Rumors have existed for quite some time regarding Beijing possibly legalizing traditional casino-style gaming in Sanya. While some might view this as an opening that can / will be exploited, we do not believe the opening of this entertainment venue represents any change in official Beijing policy towards gaming in the mainland. In fact, mainland authorities have recently been conducting widespread raids on illegal gaming venues and destroying thousands of gaming machines and related equipment representing the culmination of investigations that have been in progress for many months (and in some cases many years). We do not think the central government has any appetite to expand legal gaming beyond Macau.

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Macau round up: China anti-corruption measures; Guangzhou-Zhuhai Intercity Railway trial

December 12 2012

According to Macau Business Daily, the director of the Central People’s Government Liaison Office to Macau, Bai Zhijian, has said that ongoing measures against corruption in the mainland and the PRC government’s thoughts on Macau’s casinos are “two different matters.” This was in response to a recent “rectification” campaign that China’s new Party head, Xi Jinping, proposed as a means to intensify anti- corruption and anti-money laundering efforts. In addition, on the heels of recent media reports on the arrests and detentions of individuals associated with certain Macau junkets, Mr. Bai also commented that he does not expect Beijing to change any policies regarding Macau (i.e. there is no contemplation of punitive actions). The Macau Secretariat for Economy and Finance, Francis Tam also made a similar comment last week in that he is not aware of any policy change from China regarding Macau’s VIP business.

We continue to believe that the central government has not changed its policies towards Macau and there are no punitive actions being taken against Macau or its VIP segment. Individual incidents (like the arrests mentioned above) are likely to be related to the consolidation of power currently underway in Beijing. We believe 2013 will see a resumption of growth in the VIP segment – likely in the mid / high single digits, while the mass market segment continues to roll along with growth in the 25%+ range, driven by continued penetration into China on the heels of numerous infrastructure projects.

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Current junket “noise” likely related to consolidation of power in Beijing; buy Macau names on conti

December 04 2012

A flurry of recent media reports on the arrests of individuals associated with certain Macau junkets resulted in notable declines in shares of Hong Kong-listed Macau operators on Tuesday, and on Melco Crown’s US listing overnight. We think this selling represents an over-reaction to events that we believe are largely “non-events” with respect to Macau’s VIP volume and would therefore be buyers on any continued weakness.

There is a precedent for this kind of activity - Most of the recent arrests / detentions of junket associates appear to have had close ties to Bo Xilai, the now-disgraced Chinese politician. It makes sense to us that in the context of the transition of power in Beijing that the reverberations would be felt in Macau. We believe that these arrests / detentions come as a result of the consolidation of power by Xi Jinping (Bo Xilai was his primary adversary) who recently succeeded Hu Jintao as the top party member. We would point out that a similar spate of arrests / detentions occurred towards “unfriendly” junkets when Hu Jintao assumed control of the party and ultimately the armed forces, from Jiang Zemin. We believe that when these arrests / detentions occurred in the past, it has largely resulted in a market share shift of VIP volume, rather than an overall market-wide VIP decline (hence the contradiction between November’s decent GGR numbers and the media reports of some junket(s) saying business was down 20% in November). We would expect the current situation to play out in a similar fashion with a market share shift amongst junkets. This being said, the timing of events works out very well for Beijing as the specter of renewed violence on the heels of Broken Tooth’s release from prison likely provides adequate cover.

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Macau round up: HK-Zhuhai-Macau Bridge update; ‘Broken Tooth’ promises no trouble for Macau

December 04 2012

Task force meets to discuss progress - The fifth Hong Kong-Zhuhai-Macau Bridge (HZMB) task force meeting was held in Zhuhai last month, during which progress made on the construction this year and work plans for 2013 were discussed. Currently work on each section of the bridge has started and progress has been made, namely the main bodies on the East and West Artificial Islands have been completed; construction on the Zhuhai extension line Gongbei north tunnel and HK immigration port and extension line have begun, and foundation work has begun on the Macau-Zhuhai-immigration artificial island.

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Macau November GGR up 8%; YTD +13%

December 03 2012

November GGR +7.9% - Macau released November gaming revenue data this afternoon. GGR grew by 7.9%, to MOP24.9bn (USD3.1bn). This was inline with our expectations for mid/high single digit growth during the month. The calendar was slightly favorable with one extra Friday as compared to last year. On a YTD basis, GGR is now up 13.0%.

Daily GGR still impressive - During November, daily GGR was MOP829k (USD104mm). This amount was generally higher than most of the immediately preceding non-holiday months, which is encouraging in our view as we head into 2013. Further, we note that the sequential November GGR decline in 2012 relative to October was only 7%, which is favorable as compared to the declines in 2011 (-11%) and 2010 (-8%).

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Macau round up: Macau taking pre-emptive measures in advance of ex-gang leader’s release; new slot p

November 26 2012

Five arrested over the weekend - Over the weekend, Macau police arrested five people allegedly associated with triad activities in Macau, one of which, Artur Chiang Calderon, is said to be a key player in the so-called 14k triad society. We believe the police’s pre-emptive measures are to brace for the upcoming release from jail of the notorious (triad) gang leader, Wan Kuok-koi aka “Broken Tooth.” He was originally sentenced to 15 years in prison in 1999 and is scheduled to be released this coming Saturday.

Local media has also reported that Macau police have put together a watch-list of triad-associated persons, while China’s Liaison Office in Macau was rumored to have sent a representative to talk to and advise Broken Tooth prior to his release. This was likely part of an effort to emphasize China’s priority to keep Macau safe and prosperous.

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Macau round up: Chief Executive’s 2013 Policy Address highlights

November 14 2012

Extending the operating hours at Hengqin-Lotus (Cotai) checkpoint - During the Chief Executive of Macau’s ongoing 2013 Policy Address, the portion related to public security mentioned extending the operating hours at the Hengqin-Lotus (Cotai) checkpoint. The same proposal was also recently discussed during the Zhuhai-Macau cooperation task force meeting last month. Currently, the operating hours are from 9:00am to 8:00pm for visitors at Hengqin-Lotus. While specific details of the address regarding this matter might be released later this month during the Secretary for Security policy guidelines presentation, we believe the implementation of longer hours could eventually occur at both land immigration checkpoints, the Barrier Gate (currently 7:00am to midnight) and Hengqin-Lotus sometime next year to help alleviate congestion. We think that the hours could ultimately move to 24x7, although likely in gradually expanding stages at both locations. The Chief Executive also mentioned that they are waiting on Beijing’s approval of longer hours given that the checkpoints on the mainland side would need to mirror the hours of Macau’s immigration checkpoints.

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Macau 3Q12 GGR recap and thoughts

October 17 2012

Macau’s gaming regulatory body, the DICJ, has published detailed 3Q12 gaming data. We analyze that data herein. As already gleaned from the monthly statistics, total GGR during 3Q12 was MOP74.6bn (+6% y/y and flat sequentially). This included VIP GGR of MOP51.2bn (-1% y/y and -2% sequentially), mass tables of MOP20.3bn (+30% y/y and +7% sequentially) and slot machines of MOP3.1bn (+11% y/y, -4% sequentially). We estimate that win / table / day was MOP144,375 (+3% y/y and -2% sequentially), while win / slot / day was MOP2032 (+1% y/y and -7% sequentially). Please see Figure 1 in PDF for details.

VIP revenue drops below 70%; we think 2013 EBITDA margins +200bps y/y - For the first time in 11 quarters, VIP revenue accounted for less than 70% of total market-wide GGR at 69% in 3Q12 as noted in Figure 2 in PDF. As the combined high-margin business of mass market tables and slots continues to grow well into the double digits (27% or better since 4Q09), which we think should be sustained through 2013 and beyond, the revenue mix shift should continue. Assuming that VIP grows in the high-single-digits in 2013 (a GDP+ scenario), and the combined mass market tables and slots segment grows ~25% or better, we estimate total GGR growth should be in low double digit range, which would be quite similar to likely full year 2012 growth.

Despite what could be similar y/y GGR growth in 2012 and 2013, we remain excited about the mix shift towards mass market and slots. Based on our above growth rate scenarios, we think the 2013 revenue mix should move towards 65% VIP and 35% mass market / slots (for the first time since 2006). Under this scenario, we estimate that EBITDA margins should improve by roughly 200 bps in 2013 due to the favorable business mix shift. Importantly, we don’t think this is reflected in consensus expectations yet, as 2013 consensus EBITDA expectations for the Macau operators show only a 60bps improvement in margin on 12% top line growth. We believe current expectations for 2013 EBITDA might therefore be as much as 6% light at this point.

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Macau round up: Golden Week visitation up an estimated 9% y/y; Sands China mass market customer shar

October 08 2012

Through the end of Golden Week, total visitation to Macau increased 9.4% during the October 1 to 7 holiday, with visitation originating in mainland China up even more at 11.1%. Visitation growth during Golden Week of +9.4% (total) and +11.1% (just mainlanders) compares very favorably to YTD visitation through August of +1.1% (total) and +6.6% (just mainlanders).

We would add that the calendar comp was unfavorable, although not captured in the above numbers released by the government, which have a hard cut-off on October 7. Last year, the Golden Week holiday period began on a Saturday (October 1) and ended on a Friday (October 7), which means that it got the benefit of the following two extra weekend days (October 8 & 9) tacked on at the end. This year, the holiday began on a Monday (October 1), but didn't necessarily get the benefit of the prior two weekend days on September 29 and 30 as these days were consumed by the family-oriented Mid-Autumn Festival that likely precluded many visitors from getting a head start on a trip to Macau. Last year the Mid-Autumn Festival fell earlier in the month of September.

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Macau round up: Golden week visitation up 17% y/y over first four days; Grand Waldo deal off

October 05 2012

Golden Week visitation booming - Over the first four official days of the National Day Golden Week holiday (Oct 1- Oct 4), we estimate that Macau has received in excess of 535,000 visitors (after adjusting for an anomaly within the official data), representing 16.5% y/y growth.

Mainland Chinese visitation growth accelerating through the week - Through the first four days of the Golden Week holiday, a total of 404,000 mainland visitors have come to Macau, representing a 76% mix of total visitation, and suggesting growth of 16%.

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Macau September GGR up 12%; YTD still +15%

October 04 2012

September GGR +12.3% - Macau released September gaming revenue data this afternoon, with the market growing 12.3%, to MOP23.9bn (USD3.0bn). This was likely below recent Street expectations of mid / high teens growth. We believe the last two days of the month were quite soft due to the timing of mid-Autumn festival, which fell on Sunday, September 30 this year (vs. September 12 last year). With this very important family holiday now out of the way, we believe the first three days of October’s Golden Week (National Day) holiday period have been strong. On a YTD basis, GGR is now up 14.9%.

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Unique new supply that’s not on the radar screen

September 17 2012

New Macau project - We believe a new Macau casino-resort project, which is not being developed by one of six concessionaires, is in the process of moving forward. This casino likely represents one of the last viable 3rd party casinos in Macau and is a legacy project that was approved by the government many years ago. Importantly, we believe the project is valid in the eyes of the government and holds the necessary approvals with which to develop a gaming resort.

A boutique property - Like many of the existing 3rd party casinos, we believe this new project will be significantly smaller than a typical wholly-owned casino. We think the project will contain only 66 tables and 150 slots, with a development budget of approximately USD800mm. We note that the number of tables would only represent 1% incremental supply assuming the property comes online around 2016 (with a target of late 2015). Further, given recent commentary from the government with respect to how they will think about the table cap (not holding distribution of new tables to a strict annual limit), the project is likely to be given fair consideration from the DICJ when these tables are ultimately requested by the developer. The project will also have 236 hotel rooms (suites), ranging from 2,200 sq. ft. to 15,000 sq. ft. Finally, we believe the property will also contain an ultra-high-end retail experience (exclusively couture and bespoke), suited to the target customer.

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Macau July GGR posts increase despite typhoon

August 01 2012

July GGR +1.5% despite typhoon - Macau released July gaming revenue data this afternoon, with the market growing 1.5%, to MOP24.6bn (USD3.1bn). This was clearly above recent Street expectations of negative y/y growth owing to a severe typhoon that passed through Macau last week. July’s MOP24.6bn also represented 5% sequential growth despite even worse weather than June. The July 2012 calendar comp was unfavorable with two less weekend days this year as compared to June 2011. On a YTD basis, GGR is now up 16.8%. We note that June 2009 was the last time Macau GGR was negative on a y/y basis.

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Macau July GGR posts increase despite typhoon

July 31 2012

July GGR +1.5% despite typhoon - Macau released July gaming revenue data this afternoon, with the market growing 1.5%, to MOP24.6bn (USD3.1bn). This was clearly above recent Street expectations of negative y/y growth owing to a severe typhoon that passed through Macau last week. July’s MOP24.6bn also represented 5% sequential growth despite even worse weather than June. The July 2012 calendar comp was unfavorable with two less weekend days this year as compared to June 2011. On a YTD basis, GGR is now up 16.8%. We note that June 2009 was the last time Macau GGR was negative on a y/y basis.

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Macau round up: China says Guangzhou – Zhuhai MRT construction complete by September

July 10 2012

Guangzhou-Zhuhai Intercity Mass Rapid Transit update – officials say testing begins in October - Yesterday, Guangdong province officials announced that construction on the Gongbei terminal of the Guangzhou-Zhuhai Intercity Mass Rapid Transit (MRT) should be completed by the end of September and trial runs should begin in October. This is in an effort to have the line operational by the end of this year. This new timeline is one month faster than the last notice that Guangdong officials released in May, which admonished several infrastructure contractors to speed up and demanded that the construction to the Gongbei terminal station be complete by October.

Service on the MRT currently runs between Guangzhou and the Zhuhai North station. At the moment three stations still need to be completed (including Gongbei) with one new station recently completed. Tangjiawan station, the station after Zhuhai North, will soon start trial runs, while Mingzhu and Qianshan stations are nearing completion. Much progress has been made to the Gongbei terminal station since our last update (see pictures below) with the roof beginning to take shape. Although Guangdong officials have now indicated test runs should begin in October, which would imply the entire line could be operational by year-end, we continue to be more comfortable with our previous 1Q13 estimate. Should the project not be operational by year-end, we would expect a push to complete the line in time for the beginning of Chinese New Year on 10 February 2013. With the completion of the final 24 kilometer link of the Guangzhou – Zhuhai MRT, the journey from Guangzhou South station to Macau will take about 45 to 50 minutes, as compared to a two or more hour coach bus ride today.

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Macau June GGR +12%; typhoon hurt last weekend

July 02 2012

June GGR +12% on typhoon impact - Macau released June gaming revenue data this afternoon, with the market growing 12.2%, to MOP23.3bn (USD2.9bn). This was below recent Street expectations of mid-teens growth. But for the Signal 8 typhoon that negatively impacted this past Friday and Saturday, we believe June results would have been inline with expectations. The calendar comp was favorable, with two extra weekend days this year. On a YTD basis, GGR is now up 19.8%.

Typhoon kept HK visitors at home; likely dissuaded PRC visits as well - Owing to a typhoon that passed through the region over the weekend, which included the cessation of ferry operations for a period of time (about 10 hours, primary overnight Friday into Saturday), we believe visitation was muted. In general, the typhoon, and warnings thereof leading into the weekend, would have had the effect of keeping many visitors from Hong Kong at home over the long holiday weekend. In addition, the typhoon would have dissuaded some day-trip visitation from Guangdong. We believe the first two days of July (typhoon-free) have rebounded nicely from the last two days of June in terms of visitation and gaming volumes.

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Macau IVS restriction / IVS expansion and Union Pay

June 26 2012

Over the weekend, a Chinese language newspaper in Macau suggested that two things could negatively impact the market, namely 1) a stricter enforcement of visa restrictions with respect to the Individual Visit Scheme (IVS) and 2) a lowering of the foreign withdrawal limit on UnionPay cards. We note that this local newspaper is the only outlet to make these suggestions. No other media, government official or casino operator appears to have any knowledge that these events are, indeed, occurring. To the contrary, the same newspaper today has gone in the other direction and is reporting that the IVS might be broadened to include a greater number of persons in the Guangdong region, while also expanding the number of persons eligible for multi-entry visas to Macau. Importantly, this is also being echoed by media in the PRC.

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Macau round up: China BCCI mixed; China airlift growth

June 12 2012

UnionPay, China’s national bankcard association, released its monthly Bankcard Consumer Confidence Index (BCCI) for May 2012 (see Figure 1). The index, at 86.53, was up 49bps on a y/y basis (as compared to the 86.11 reported in May 2011). It did, however, decline sequentially for the third time in four months (down 14bps sequentially in May). Despite the recent sequential declines, we note that visitation to Macau from mainland China is up 14% YTD, while spend per visitor is up higher still.

China to add 70 more airports by 2015; 300+ new planes annually - Officials from Civil Aviation Administration of China (CAAC) announced that the country is going to build (or begin construction on) 70 new airports, expand 101 existing airports and relocate 15 airports in the next 4 years, resulting in more than 230 airports in operation by 2015. This is part of China’s current 5 year economic and development plan (2011-2015). In 2011, there were 178 airports serving 175 cities in China with a total passenger throughput of 620 million. Authorities also plan to introduce a minimum of 300 commercial aircraft per year with an expectation to reach 4,700 planes by 2015.

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Macau May GGR +7%; safety in mass market operators

June 01 2012

May GGR of MOP26.1bn (USD3.3bn) - Macau released May gaming revenue data this afternoon, with GGR inline with Street expectations of approximately MOP26bn (USD3.3bn) and growth of 7% y/y. Despite the low rate of growth, May was the second highest GGR on record (3% below last October) and the second highest daily GGR at MOP841mm. While perhaps cold comfort to some investors, we believe that low hold for at least two concessionaires negatively impacted May results. Further, the calendar comp was unfavorable, with one fewer Sunday this year, while last year enjoyed the benefit of the May Day holiday beginning on a Sunday vs. Tuesday this year. On a YTD basis, GGR is up 21.3%.

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Macau government reiterates -10% GGR forecast for 2012; history suggests otherwise

May 28 2012

Government official reiterates forecast of 10% GGR decline in 2012 - Over the weekend, Macau’s Secretariat for Economy and Finance, Francis Tam, reiterated the government’s GGR forecast of MOP20bn per month in 2012. We do not believe this forecast is based on actual trends or any special insight the government might have into the VIP market. Rather, we think the government, as always, is being ultra-conservative with respect to its budgeting process.

We note that the government’s forecast of MOP20bn per month in 2012 would imply full-year GGR of MOP240bn, which would represent a y/y decline of 10% from the MOP268bn recorded in2011. Further, and based on the MOP99bn already generated from January to April of this year, the government’s forecast would imply GGR of MOP141bn for the May to December period, or a y/y decline of 26% from the prior year period. This would also imply May to December monthly GGR of MOP17.6bn, or nearly 30% below the current YTD monthly run-rate of MOP24.8bn.

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Macau round up: Guangzhou to Macau rail on “track” for 1Q13 opening

May 25 2012

Guangzhou-Zhuhai Intercity Mass Rapid Transit update - It is important to note that Guangdong province officials have recently released a notice demanding several infrastructure projects speed up their construction schedule. Included in this project list is the Guangzhou-Zhuhai Intercity Mass Rapid Transit (MRT) with officials dictating an end-of-the-year completion deadline. At the moment four stations still need to be completed between Zhuhai North and the terminal station at Gongbei (Tangjiawan, Mingzhu, Qianshan and the Gongbei terminus). Tangjiawan station is near completion and the Gongbei terminus (see pictures below) is expected to be finished in October (much progress has been made since our last update). However we believe much works remains on the other two stations, which is why we are more comfortable with our 1Q13 estimate rather than year-end 2012. Should the project not be operational by year-end, we would expect additional pressure to be placed on contractors to finish the line in time for the beginning of Chinese New Year on 10 February 2013.

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Macau round up: Hengqin theme park update and new highway

May 17 2012

Yesterday, the hotel at the under-construction theme park in Hengqin was topped off. The 1,888-room hotel is located in Fuxiang Bay on East Hengqin and will be one of the largest hotels in mainland China with a total construction area of 300,000 square meters. The hotel is part of the RMB 10 billion (USD 1.56 billion) Phase I construction of the Chime-Long International Ocean Resort, which also includes “Ocean Kingdom,” the first of several planned theme parks on Hengqin. Ocean Kingdom is anticipated to include the world’s largest aquarium, and is expected to be operational by the end of this year, although we wouldn’t be surprised if the opening was pushed into 2013. Future phases of the project will be located at the adjacent Hengqin Mountain and Dolphin Bay. These future phases are planned to include up to 9 additional theme parks, 12 luxury hotels, 3 golf courses, 2 international yacht clubs, several shopping malls and convention centers.

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Macau March visitation +7%; Chinese visitation +15%

April 25 2012

Total visitation +7% in March; Chinese visitation +15% - Visitation to Macau increased 7.3% y/y in March to 2.3mm persons. On a YTD basis, visitation has increased 7.9% y/y, to 6.9mm persons. Importantly, visitation from mainland China increased 15% during the month and is also up 15% YTD.

Favorable Chinese visitor mix drives mass market GGR - In March, fully 62% of visitors came from mainland China (61% YTD), which is well above the 2011 average of 58% and the long-term average of 54%. This favorable customer mix is the driving force behind the strength in mass market GGR. In 1Q12, we estimate mass market gaming spend per visitor increased 26% y/y on an 8% increase in visitation, resulting in 36% GGR growth (mass tables and slots combined). We expect this trend to continue (greater mix of Chinese visitors and increasing spend per visit) on the heels on numerous infrastructure projects that should positively impact Macau over the near, medium and longer terms.

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Macau March GGR +24%; 2012 still on track for 20%+

April 02 2012

March GGR of MOP25.0bn (USD3.1bn) - Macau released March gaming revenue data this afternoon, with GGR reaching MOP25.0bn (USD3.1bn). This represented growth of 24% over March 2011, which presented a tough comp of +48%. March 2012 did enjoy a calendar benefit with 5 full weekends, vs. 4 weekends in March 2011. On a YTD basis, GGR is now up 27.0%. We note that March GGR was inline with January’s CNY-boosted GGR and only 7% below the all-time record of MOP26.9bn set in October of last year.

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Macau round up: investments in Hengqin

March 21 2012

Hengqin business registrations up 174% y/y - The number of business registrations in Hengqin increased 174% y/y, to 679. Hengqin, which is directly opposite Cotai in mainland China, is undergoing significant greenfield development, which among other things will include a relocated University of Macau, a theme park, and significant residential supply. Ultimately, we believe the population of Hengqin could grow from about 5,000 today, to hundreds of thousands as the area is built out over the next 5 to 10 years. Access to / from Hengqin and Macau is currently served by the Lotus bridge, while a tunnel is currently being constructed. The Guangzhou – Zhuhai Intercity Mass Rapid Transit system is planned to extend from the Gongbei border gate to Hengqin and ultimately to the Zhuhai airport.

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Quantifying the Macau mass market impact of the NPC proposals

March 13 2012

The CPPCC (Chinese People’s Political Consultative Conference) and NPC (National People’s Congress) are essentially an advisory and legislative body, respectively. Macau, as an SAR of China, has delegates in each body. Both the CPPCC and NPC conduct high-level annual meetings, with the CPPCC meeting from March 3 to March 12 and the NPC from March 5 to March 14. We would characterize the annual meetings of both the CPPCC and NPC as venues for delegates to raise locally-oriented issues. We believe that if an issue is raised, the delegate(s) raising the issue believes that there is a high probability that action will ultimately be taken – we think this is especially true with respect to the NPC.

We estimate a potential for nearly USD7bn in incremental mass market GGR - We estimate the implementation of the border gate expansion, longer operating hours and greater utilization of the TIP border crossing puts in place the long-term framework for Macau to ultimately handle up to 49mm annual visitors (hotel room supply notwithstanding, and before the benefit from an expanded Taipa / Cotai ferry terminal, the Hong Kong-Zhuhai-Macau bridge, and a potential airport expansion), which is 75% higher than the 28mm visitors to Macau in 2011 and 25% higher than the 39mm visitors to Las Vegas last year. Based on current mass market GGR per visitor, 75% higher visitation suggests an incremental USD6.7bn in high-margin mass market GGR.

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Macau round up: thoughts on some recent data points (12 March 2012)

March 12 2012

Macau Light Rail Transit contemplating a direct line to Taipa / Cotai from the HK-Zhuhai-Macau bridge - The Macau Light Rail Transit (LRT) system, on which construction recently began, might build an additional line on the east side of Macau. We believe the proposed add-on would connect the drop-off point of the Hong Kong-Zhuhai-Macau bridge directly to Taipa / Cotai, bypassing the numerous station stops on the Macau peninsula. Although not addressed, we would anticipate this spur line to open sometime after Phase 1 opens in 2016. We would view this spur line as a positive for operators with significant Cotai exposure.

New Macau high rise sells out in one afternoon - Phase 3 of One Oasis, a luxury high-rise residential project located at the foot of the Cotai Strip (in Coloane), sold out in a single afternoon this past weekend. We believe that about half of the initial 220 units were pre-sold, which is inline with presales of Phases 1 and 2. Pricing in Phase 3 could be in a range of HK$5,500 to HK$6,000 per square foot, which compares to Phase 1 at about HKD4,300 (in April 2010) and Phase 2 at HKD5,000 (in March 2011). Of the approximately 1,600 units in the first two phases, about 60% were purchased by Macau residents and 30% by mainland residents. Phase 1 is currently under construction and expected to open sometime during 2013.

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New border checkpoint planned for Macau / PRC

March 08 2012

New border checkpoint planned; date and location TBD - The governments of Macau and Guangdong PRC have reached an agreement on the need to ultimately build another border checkpoint between Macau and Zhuhai in order to handle anticipated future demand. This would be incremental to the in-progress expansion of the existing border gate on the Macau peninsula. There are currently two land-based border checkpoints between Macau and the PRC. The primary border gate located on the northern border of the Macau peninsula handled 14.1mm visitors in 2011 (51% of total visitation), while the Cotai checkpoint handled 1.1mm visitors (4% of total visitation). It is likely that the proposed border checkpoint will have longer operation hours than the existing Macau peninsula facility of 7am to midnight.

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February Macau GGR sets the tone for 20%+ in 2012

March 01 2012

February GGR of MOP24.3bn (USD3.0bn) - Macau released February gaming revenue data this afternoon, with GGR reaching MOP24.3bn (USD3.0bn). This represented growth of 22% over February 2011, which was a tough calendar comp as February last year included Chinese New Year (CNY). In order to smooth out the CNY calendar shift, it is important to look at the combined GGR from January and February, which totaled MOP49.3bn (USD6.2bn) and was up 28% as compared to January and February of last year. Even after adjusting for this year’s leap year benefit, we estimate the combined January and February period grew by over 26% y/y.

February GGR was well above recent consensus expectations - We believe consensus expectations for February GGR were approximately MOP22bn, while actual results came in 10% higher. In part, we would attribute this delta simply to the underlying (and under-appreciated) current strength of the Macau market. In our opinion, a strong February jibes with recent comments we’ve heard across the industry that internal expectations are beginning to shift from a market-wide growth forecast of 15% to 20%, to becoming more inline with our forecast of 20%+.

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Macau round up: China BCCI up

February 21 2012

China BCCI (Bankcard consumer confidence index) up - UnionPay, China’s national bankcard association, released its monthly Bankcard Consumer Confidence Index for January 2012. The index, at 86.78, has now risen sequentially for seven consecutive months. The index is currently 144bps higher on a y/y basis, but nearly 70bps below the high of 87.38 set in October 2009. In 2011, we note that purchases via UnionPay totaled RMB 15.9 trillion (USD 2.5 trillion), up 40% y/y.

The benefit of positive consumer confidence trends in China seemingly continue to accrue to Macau. In 2011, mass market table games revenue grew 37%, with growth accelerating in 2H11 (+41% y/y) on the heels of new supply entering the market in the form of Galaxy Macau. We expect continued strong mass market growth in 2012, driven in part by Sands China’s Cotai Central, which will represent the only significant amount of gaming supply likely to come online over the next three to four years. By 2013, we anticipate to see the positive impact of infrastructure projects on mass market revenues, namely the border gate expansion and completion of the rail network from Guangzhou.

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Macau mass market shares by operator / property in December and January

February 21 2012

Market share breakdown:

By operator - During December and January, Sands China continued to lead the market with a weighted share of customers of 34.3%, followed by SJM Holdings (27.2%), Galaxy Entertainment (20.0%), Wynn Macau (7.2%), MGM China (6.4%), and Melco Crown (4.9%). Compared to our survey conducted in Oct/Nov, SJM Holdings’ share declined 360 bps, which is not overly surprising given that the company’s share of traffic at the Taipa terminal is significantly smaller than their share at the points of entry on the Macau peninsula. At the Taipa ferry terminal, Sands China had a 51% share, while Galaxy Entertainment was second with a 16% share.

By property - Market shares by property are shown in Figure 3 in the PDF. The top three shares continued to belong to Venetian Macao (22%), the combination of SJM’s Grand Lisboa / Lisboa (15.5%) and Sands Macao (12.3%).

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Only two Cotai projects set for approval in 2012

February 06 2012

Macau likely to approve two of the three Cotai land applications in 2012 - Local media is reporting that the Director of Macau's Lands and Public Works Bureau has indicated his department will likely approve just two of the three Cotai land grant applications during 2012. MGM China, SJM Holdings and Wynn Macau all have submitted applications for Cotai land, with expected approvals in the "any day now" status for many months already.

The Bureau noted that they don't have the capacity (manpower) to approve all three applications this year due to associated and various complexities, which is something we can commiserate with, being based in Macau and witnessing in real time how the gears of government grind. However, we believe the primary driver of the decision to approve only two of the applications this year is to intentionally stagger the timing of future development. It is also possible that the Bureau truly is overwhelmed by the application process - not due to a lack of manpower, but rather due to shifting casino development scopes. Given the high stakes, we can certainly envision the operators continually enhancing their proposals to include amenities (e.g. room counts and types, amount of expected local employment, scale of non-gaming attractions, total dollar investment, etc.) perceived to be the most likely to result in first approval.

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Macau January GGR of MOP 25bn sets tone for 20% growth

January 31 2012

January GGR of MOP25bn (USD3.1bn) - Macau released January gaming revenue data this afternoon, with GGR reaching MOP25bn (USD3.1bn). This represented growth of 35% over January 2011, which was an “easy” calendar comp as it did not include Chinese New Year (CNY) due to a calendar shift. As compared to February 2011, which did have CNY, January grew 26%, although after adjusting for three fewer days in Feb, we estimate y/y growth was closer to 15%.

January’s 25bn was lower than our forecast - Although January’s GGR of 25bn was the second highest amount ever recorded and represented a sequential increase from Nov / Dec (+7% vs. consensus expectations for little / no sequential growth), it did fall short of our forecast for a new record (by ~3bn). While most of the variance stemmed from lower VIP volumes relative to our expectations for a very big holiday period, we think that several operators also played a bit unlucky (but not dramatically).

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Macau CNY booming; we still think January could set a record

January 25 2012

We still think January could set an all-time GGR record - We continue to believe that despite the “slow” start to the month, January could break October’s record GGR of MOP 26.9bn (US$3.4bn). Based on our channel checks, we think VIP operators are generally expecting record gaming volumes this month and assuming hold is within the normal range, it should translate into record GGR. This means that the month will have to be very much back-end loaded, but given the timing of CNY and the likely magnitude of volume associated with the days immediately following CNY Day 1, this makes sense to us and we believe it is achievable. Please see our note “Macau Chinese New Year 2012 preview; a record in the making” from 5 January 2012 for more information.

Casino floors are booming and volume should grow sequentially until Sunday - We have walked most of the major casino floors on each of the past several nights (both on the Macau Peninsula and Cotai) and have seen crowds grow significantly through tonight (CNY Day 3). Table occupancy is very high (or full in many cases) and we’re seeing table minimums grow each day. We expect visitation to continue to grow on a sequential basis through Sunday (CNY Day 7) and expect gaming volumes to similarly grow, ending January on a high note and setting the tone for 1Q12 and beyond.

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Macau Pre-Chinese New Year visitation up 17%

January 23 2012

Total visits +17% and mainland visits +25% on CNY “Day -3” - According to data from the Macau SAR, visitation to Macau on Chinese New Year 2012 Day -3 increased 17% y/y, to 96.7k visitors (i.e. Friday, 20 January 2012, which was the third day prior to the official beginning of CNY as compared to Monday, 31 January 2011, which was the third day prior to the beginning of CNY 2011). Visitation from mainland China grew by 25% y/y. As we’ve noted before, we think CNY 2012 enjoys a calendar benefit relative to CNY 2011, as CNY 2012 begins on a Monday (23 January) and therefore enjoys the leading weekend. CNY 2011 began on a Thursday. While we acknowledge that the days leading up to CNY, as well as the first day of CNY itself, are seasonally slow from a GGR perspective, we are encouraged by the solid y/y increase in visitation in the days leading up to CNY (growing at a faster rate than 4Q11’s +15%).

We believe double-digit visitation growth continued over weekend - We believe visitation was about 82,000 on Saturday (CNY Day -2), which was a 15% sequential decline day-over-day. The decline stems from familial obligations ramping up as CNY draws closer. Regardless, we still believe visitation of 82,000 on Saturday represented a double-digit y/y increase relative to CNY 2011 Day -2 (which was a Tuesday last year). Further, we would point out that visitation of 82,000 persons was still higher than average daily visits of 78,000 throughout the whole of 2011.

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Macau Chinese New Year 2012 preview; a record in the making

January 06 2012

Favorable Chinese New Year calendar in 2012 - The week-long Chinese New Year (“CNY”) holiday officially begins on Monday, 23 January, so the holiday will also enjoy the benefit of getting a head start as of Friday night, 20 January. This effectively extends the holiday period by an additional two days as compared to last year. In 2011, the holiday period began on Thursday, 3 February and therefore did not receive the benefit of a free weekend at the beginning or end. We note that while the PRC officially recognizes the CNY holiday as only three-days, it is commonly celebrated for seven days (the first of two annual “Golden Weeks”).

We expect record GGR in January driven by CNY - Assuming hold percentage (luck) is within the expected range, we are forecasting January GGR in a range of MOP28bn to 29bn (US$3.5bn to 3.6bn). This would imply 51% to 56% growth as compared to the previous January and 41% to 46% growth as compared to the previous February, which included CNY 2011. Further, GGR of MOP28bn to 29bn would be 4% to 8% higher than the previous all-time record of nearly MOP27bn in October 2011 (driven by the second of the two annual Golden Weeks). Finally, we note that our January 2012 forecast is up against a January 2011 comp that will be one of the easiest of the year, at “only” +33%.

Our January 2012 GGR forecast is MOP28 to 29bn - We are forecasting average GGR of MOP1.6bn per day during the seven-day CNY period, for a total of MOP11.2bn (US$1.4bn). This compares to the peak daily GGR of MOP1.48bn recorded on the sixth day of CNY last year. Based on the recent run-rate, we estimate daily GGR during a non-holiday period is about MOP750mm. Assuming a slight discount to this number given the specific focus on visiting Macau during CNY for many customers, we think the non-holiday portion of January is likely to generate between MOP700-725mm in GGR per day, or a total of MOP16.8 to 17.4bn (US$2.1 to 2.2bn). Combined with the CNY period, we are forecasting total January GGR of MOP28.0 to 28.6bn (US$3.5 to 3.6bn).

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Macau GGR still going strong; we forecast +30% in 1Q12

January 03 2012

December GGR inline with expectations - Macau released December gaming revenue data this afternoon, which was inline with our expectations at MOP 23.6bn (US$2.9bn). This represented a 25% y/y growth rate against a very tough +66% comp. For the full year 2011, GGR totaled MOP 267.9bn (US$33.5bn), or an increase of 42% vs. 2010. To put this year’s GGR and growth rate into perspective, total GGR in Macau will be approximately 5.5x the GGR generated on the Las Vegas Strip, while the rate of growth in Macau will be roughly 10x the rate on the Las Vegas Strip.

We are forecasting 30% GGR growth in 1Q12 - We continue to believe the VIP segment should remain strong through at least the early part of 2012, as our channel checks suggest VIP demand is growing, not shrinking (despite macro China fears) with junkets asking for additional tables at many / most properties. Further, new supply in the form of Sands China’s Cotai Central should be a driver of demand, much as other new properties have driven demand previously (most recently Galaxy Macau). With this in mind, we are forecasting 30% GGR growth in 1Q12 (vs. a +43% comp), driven by what is shaping up to be yet another all-time record month in January 2012. We note that Chinese New Year shifts to January this year vs. February last year. As such, we are expecting growth upwards of 50% in January based of GGR in excess of MOP 27bn (US$3.4bn).

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Macau mass market shares – October and November

December 05 2011

This is the fourth installment of our report that tracks shares of mass market customers, both by operator and by property. We have compiled many observations from the two primary entry points into Macau, the Outer Harbor Ferry Terminal and the Macau Border Gate, which combined accounted for 78% of total visitation in 2010 (26% at the Ferry Terminal and 52% at the Border Gate). This installment covers the months of October and November, which included observations across multiple day parts and week parts.

We note that our methodology of counting casino shuttle bus passengers slightly undercounts the total share for SJM given that the company’s Oceanus does not run shuttle busses from the Ferry Terminal and that the property is connected by an overhead walkway which allows customers to walk to Oceanus directly. Further, our methodology does not account for such factors as customer spending characteristics upon arrival at their destination casino or the amount of time spent on the property.

By operator - During October and November, Sands China continued to lead the market with a weighted share of customers of 34.3%, followed by SJM Holdings (30.8%), Galaxy Entertainment (19.4%), Wynn Macau (6.0%), MGM China (5.6%), and Melco Crown (4.0%). While these shares are broadly inline with previously reported shares, we note the following changes relative to our August / September survey: Sands China -110 bps, SJM Holdings -10 bps, Galaxy Entertainment +210 bps, Wynn Macau -30 bps, MGM China +50 bps and Melco Crown -90 bps.

By property - Market shares by property are shown in Figure 2 in PDF. The top three shares continued to belong to Venetian Macao (20.3%), the combination of SJM’s Grand Lisboa / Lisboa (16.1%) and Sands Macao (13.9%). Compared to our survey conducted in Aug/Sep, the three properties that picked up the most market share were: Lisboa / Grand Lisboa (+110 bps), Galaxy Macau (+90 bps) and Star World (+80 bps).

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Thoughts on the Macau Chief Executive’s 2012 Policy Address

November 25 2011

Yesterday, Macau’s Secretary of Economy and Finance, Mr. Francis Tam Pek Yuen, met with the legislative assembly, as a follow-up to the 2012 Policy Address made by the Chief Executive of Macau, Mr. Fernando Chui Sai On, on 15 November 2011. The Policy Address is an annual speech made by the Chief Executive that gives an outline of policies and new initiatives that he wishes the government to implement in the coming year. Following the Chief Executive’s announcement, senior officials from different policy bureaus (e.g. economy, education, healthcare, labor and welfare) will provide further details about their specific plans and initiatives as mentioned in the Chief Executive’s Policy Address. A typical legislative process will then follow with members supporting or opposing the various initiatives set out in the Policy Address.

During yesterday’s meeting with the legislature, the Secretary of Economy and Finance emphasized that the gaming industry should continue to grow steadily in Macau to help stimulate growth in non-gaming areas like MICE, hotel, retail and F&B. He suggested that the government will support the development of the necessary facilities, infrastructure, human resources and local talent to help diversify its economy, and in particular, the MICE industry. The Secretary also mentioned that the administration will increase its transparency in regards to the issuance of work visas for foreigners and shorten the time associated with the required application process. In addition, the administration will continue to monitor the labor market in Macau to ensure recruitment of foreign labor is concentrated only in areas where local supply is well below demand. We note that the current unemployment rate in Macau is just 2.6%.

Policies impacting the gaming industry - As widely expected, the Secretary confirmed that the tax holiday on gaming profits (at a rate of 12%) for the six concessionaries will continue for another five years and that the current tax of 35% applied to gross gaming revenue is unlikely to be changed.

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Golden week booming; September GGR inline

October 04 2011

Over the first three days of Golden Week (October 1 – 3), we believe that the most common metrics (VIP roll, VIP win, casino foot traffic, mass market table and slot win) were up nicely on a y/y basis and generally into record territory, putting October on pace to be an all-time record in excess of MOP25mm. Over the same period, we note that visitation to Macau appeared to be at record levels, with the Gongbei border gate reporting 420,000 persons, or 140,000 per day (effectively at max daily capacity). Most hotel rooms in market have been booked weeks in advance (rather than hours or days), again suggesting strength in Golden Week demand. We acknowledge investor concerns largely surround unknowns, especially with respect to the underground banking market in China and overall consumer health in the Mainland. Hence the recent reset of investor expectations for Macau, which we believe imply forthcoming downward revisions to 2012 EBITDA of up to 50% (suggesting y/y EBITDA declines of 20%+). However, all of our channel checks suggest otherwise: continued strength in the VIP and mass markets. Junket operators are not requesting less capital and they are repaying casino operators inline with timing seen YTD which is keeping the YTD velocity of capital intact. If anything, junkets are indicating increased demand at the high-end of the market, which should carry through the end of the calendar year.

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Another record for Macau GGR; 2012 expectations too light

September 01 2011

Macau gaming revenue up 57% to MOP24.8bn (US$3.1bn) in August - Macau released August gaming revenues this afternoon, which were up 57.0% y/y and up 2.3% sequentially, to MOP 24.8bn (US$3.1bn). The comp was +40%. As expected, August revenues not only established a new monthly record, but the y/y increase was the highest level seen in 2011. Further, gaming revenue growth rates have been at their highest levels of 2011 over the past three months suggested that growth is accelerating into the back half of 2011.

YTD +47%; rocketing past US$40bn in 2012 - Through August, GGR has totaled MOP 173.1bn (US$21.6bn), or a monthly average of MOP 21.6bn (US$2.7bn). Given current market strength, the addition of new supply (Galaxy Macau) that is growing the market, as well as typical seasonal trends (stronger 2H relative to 1H) and accelerating growth over the past three months, we are forecasting an average of MOP 24bn (US$3.0bn) per month for the balance of the year. This results in overall growth of 43% in 2011, to MOP 269bn (US$33.6bn). We believe 2012 GGR will grow at a minimum of 20%, to in excess of MOP320bn (US$40bn+), although we are heavily biased to the upside.

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Macau July gaming revs a near record at +48%; now +45% YTD

August 01 2011

Macau gaming revenue up 48% to MOP24.2bn (US$3.0bn) in July - Macau released July gaming revenues this afternoon, which were up 48.4% y/y and up 16.4% sequentially, to MOP 24.2bn (US$3.0bn) or just short of the record MOP 24.3bn recorded in May. The comp was very tough at +70%. This is the second time GGR has eclipsed the US$3.0bn mark. Looking at the calendar, we note that July 2011 had one additional Sunday as compared to July 2010.

Raising our 2011 forecast to +40% (MOP 263bn) - Through July, GGR has totaled MOP 148.3bn (US$18.5bn), or a monthly average of MOP 21.2bn (US$2.6bn). Given current market strength, the addition of new supply that is growing the market (Galaxy Macau), as well as typical seasonal trends (stronger 2H relative to 1H), we are forecasting an average of MOP 23bn (US$2.9bn) per month for the balance of the year. This results in overall growth of 40% in 2011, to MOP 263bn (US$32.8bn). By way of comparison, our forecast of US$32.8bn will likely be 5.5x total Las Vegas Strip gaming revenues of ~6.0bn this year.

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Thoughts on central government official’s Macau visit

July 08 2011

There has been a fair amount of speculation regarding the meaning of a recent visit to Macau of an important Chinese central government official. In mid-June, Minister Wang Guangya, the relatively new Director of the Hong Kong and Macau Affairs Office of the State Council spent two days in Macau meeting with the Chief Executive and various officials, while also inspecting urban infrastructure and community development. This was his first visit to Macau. On a recent trip to Beijing, we participated in a small group meeting with Minister Wang Guangya. As it relates to Macau, the Director is responsible for all affairs of the Special Administrative Region (SAR) on behalf of the Chinese Premier. He is the conduit to China's central government for Macau's Chief Executive, Fernando Chui Sai On. We found the Director's message with respect to Macau to be piercingly clear and direct. With a backdrop of protectionism for Macau's population, his intent is to foster greater economic diversity in Macau, particularly via horizontal means. He will support development and investment that is complimentary to gaming in an effort to make Macau less vulnerable to another financial crisis (global, Asian, Chinese or otherwise). We believe the Director's message tied nicely with China's proposed, 12th 5-year program (2011-2015) which stresses economic development and social improvement, to be adopted in Spring 2011.

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Macau infrastructure update: China border gate and intercity rail

June 20 2011

We recently crossed the border into Zhuhai in order to get a better sense for the timing of two significant infrastructure projects that will ultimately benefit mass market visitation to Macau. These projects are 1) the expansion of the Gongbei immigration checkpoint and 2) the construction of the Gongbei terminal station for the Guangzhou – Zhuhai Intercity Mass Rapid Transit (MRT) line.

The physical expansion of the Macau side of the Gongbei / Macau immigration gate was completed in April 2010. This resulted in an increase in the number of immigration counters to 98, from 56 (+75%), while also increasing the number of E-Channels to 80 (self-serve electronic immigration kiosks for certain Chinese and Macau residents). The result of this expansion allows maximum daily capacity of 500,000 persons. Despite this, a bottleneck remains on the Gongbei (Mainland China) side, as its maximum daily capacity is currently 150,000 persons. The expansion of Gongbei is currently underway and upon completion will raise daily capacity to 350,000 (+133% from the current capacity of 150,000).

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Macau May gaming revs off the charts; Galaxy Macau thoughts

June 01 2011

Macau gaming revenue up 42% to MOP24.3bn (US$3.0bn) in May - Macau released May gaming revenues this afternoon, which were up 42.4% y/y and 18.5% sequentially, to another all-time monthly record of MOP24.3bn (US$3.0bn). This represents the fourth sequential record month and the first time GGR has eclipsed the US$3.0bn mark. May 2011 had one fewer weekend day this year (8 vs. 9), but benefited from the opening of Galaxy Macau mid-month.

YTD run rate suggests 32% growth in 2011 - On a YTD basis, average monthly GGR has totaled MOP20.7bn (US$2.6bn). Extrapolating this run-rate through the balance of the year, would yield total 2011 GGR of MOP248bn (US$31bn), which would represent 32% growth. However, if the rest of the year were inline with the level set in May, total GGR would be MOP273bn (US$34bn), and up 45% on the year.

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No surprise, another record for Macau gaming revenue

May 03 2011

Macau gaming revenue up 45% to MOP20.5bn (US$2.6bn) in April - Macau released April gaming revenues this afternoon, which were up 44.6% y/y and 2.1% sequentially, to yet another all-time monthly record of MOP20.5bn (US$2.6bn). This represents the third sequential record month and the second time GGR has eclipsed the MOP20bn mark. April 2011 enjoyed the benefit of one additional weekend day as compared to 2010 (10 vs. 9). April 2011 also benefited from an early start to the typical May 1 Labor Day holiday, which began this year on April 30.

We believe mass market growing fastest sequentially, bodes well for opening of Galaxy Macau - Solid YTD visitation trends (+5.2% y/y through March), combined with a notable +12.8% y/y visitation increase over Easter weekend (which would typically be attributable to Hong Kong visitors) dovetail nicely with stronger sequential growth of mass market table (+8.2% sequentially in 1Q11) and slot machine revenues (+13.1% sequentially in 1Q11) vs. VIP tables (+5.2% sequentially in 1Q11). We think the ramping of mass market and slot revenues bodes well for the opening of Galaxy Macau in less than two weeks, which will have a significant mass market focus.

Run-rating +26% for 2011 - Based on MOP19.8bn average monthly GGR on a YTD basis, the run-rate would suggest MOP237bn for the full year 2011 (US$29.6bn) or a 26% y/y increase. Based on a confluence of factors (not the least of which is that the 2nd half of year is usually stronger than the 1st) we believe GGR growth for the year is likely to exceed this rate and could reach 30%+.

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Updated draft of Taiwan gaming law released

April 04 2011

Updated draft of Taiwan gaming law released - The Taiwan Ministry of Transportation and Communications (MOTC), which has oversight over the Tourism Bureau, has released an updated set of draft rules that could govern the country’s potential future gaming industry. Although we still believe the best location for the casinos would be near Taipei, it appears that the target area for casinos remains the outlying islands which are underperforming economically. As proposed, at least two licenses would be issued.

Limited impact on Macau - We do not believe expansion of gaming in Taiwan would have a significant impact on Macau over the medium or long-term. 1) Any expansion of gaming is likely several years away (5+ in a quickest-case scenario) when accounting for the legislative /referendum process, the RFP process and typical construction timelines. 2) While more mainland PRC residents are traveling to Taiwan these days under a more relaxed visitation scheme, Beijing is incentivized to direct gaming visitation to Macau rather than Taiwan. 3) Taiwanese visitation to Macau only accounted for 5% of total visitation in 2010 (down from 15% in 2000) and likely accounted for only a low-single-digit percentage of gross gaming revenue last year.

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Macau gaming revenue breaks the MOP20bn mark

March 31 2011

Macau gaming revenue up 48% to MOP20.1bn (US$2.5bn) in March - Macau released March gaming revenues this afternoon, which were up 48% y/y and 1% sequentially, to an all-time monthly record of MOP20.1bn (US$2.5bn). This represents the second sequential record month and the first time GGR has eclipsed the MOP20bn mark. Clearly no negative impact was felt as a result of the events in Japan during the month.

Run-rating +24% for 2011 - Based on the MOP19.5bn average monthly GGR during 1Q11, the run-rate would suggest MOP234bn for the full year 2011 (US$29.2bn) or a 24% y/y increase. Based on a confluence of factors we believe GGR growth for the year is likely to exceed this rate and will be towards the higher end of a range of +25% to +30% given that trends in the second half of the year are usually stronger than the first. This would result in GGR of MOP235bn to 245bn (US$29.4bn to $30.6bn) for the year. To put this in perspective, GGR of US$30.6bn in Macau is likely to be more than 5x the amount of GGR on the Las Vegas Strip this year (vs. 4x last year).

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Riding the high-speed rails: a Macau infrastructure update

March 31 2011

Riding the high-speed rails: a Macau infrastructure update

HSR likely accounts for less than one percent of Macau visitationWe believe HSR is currently responsible for transporting less than one percent of mass market visitors to Macau, although with continued expansions HSR could ultimately open Macau to a much more significant number of Chinese residents. Over the last half year, 52% of mainland visitation to Macau has come from the Guangdong province that is adjacent to Macau and home to the terminus of the HSR line. Given their proximity to Macau, these residents are not users of inbound HSR, nor are residents of other southern provinces that do not have HSR connectivity. However, certain visitors from Hubei and Hunan provinces (accounting for 3% of mainland visitation to Macau) that are in proximity of the HSR line would find it a convenient method of transportation to Macau. On a longer-term basis over the next four to five years, China’s HSR network will be much more robust and would link a significantly higher percentage of Chinese residents to Macau (in conjunction with various light rail networks). We would view the upgrade of the HSR networks to be an important driver of continued mass market visitation growth to Macau given what appears to be an (ingrained) preference for rail travel, as well as a tolerance for longer journeys (relative to air travel) in exchange for saving money on transportation costs. This maxim seems to be true throughout Asia: mass market casino customers might “cheap out” on transportation costs and subject themselves to what westerners would consider to be arduous journeys, but then hit the casino floors firing on all cylinders with per-hand wagers in excess of the cost of the trip.

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All-time daily record for Macau gaming revenue established

February 18 2011

Local media is reporting that a new all-time record for daily gross gaming revenue was established during the recently finished Chinese New Year period. On 8 February (day six of CNY), GGR reached MOP 1.48bn (US$185mm). This is 11% higher than the previous high of MOP 1.33bn set during last October’s Golden Week holiday. By way of comparison, average daily GGR throughout the entire year 2010 was MOP 516mm and was MOP 480mm in February of last year.

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