Macau Taipa Cotai Strip

Mainland visitors surge again

September 1st, 2011

It’s official: something is happening across the border in our hinterland, we just don’t know what.  Visitor numbers are surging from the mainland, especially Guangdong. In july, they were up a sizzling 28% over the same month last year. That’s off a base of 650,000 in a single month!

According to the latest stats from the government, overall visitor numbers were up 18% YoY in July. We saw it halfway through, called it, and will go on record now to say we expect similar numbers for August, too.

Interestingly enough, however, these visitors have not been lifting everyone’s boats equally. Perhaps counter-intuitively for the summer months, the Taipa ferry terminal, which services the big integrated resorts on Cotai, actually saw fewer passengers than in July last year. This might just be due to a tightening of the Venetian’s comp policies, but it certainly shows in the numbers that, despite higher ticket prices, Turbojet and First Ferry (now one and the same owner) did a better job bringing people to Macau in July than Cotaijet.

Or it might just mean that the Cotai resorts turned their focus more to the mainland, which would also make sense, as arrivals via the Gongbei land connection shot up 15% over last July.

Whatever the case, it’s clear that if current trends continue, marketing executives are going to have to revisit their advertising priorities again as the percentage of mainlanders in the total arrivals pie continues to grow – up to 57% now and climbing.

The numbers must also give some comfort to investors scared by recent analysis of luxury-brand sales in China. Recession? Not from where we are sitting. Used with permission & copyright IntelMacau.com

SJM and Sands

August 20th, 2011

 An excerpt on why SJM is currently better investment than Sands.

1) Stability of earnings. Just look at the difference in win-hold volatility between these companies. Sands may have an enviable direct-VIP business that produces margins roughly twice those of the junket business, but it carries a different price: more widely fluctuating revenues. This part of the revenue stream should also, in our opinion, carry a longer-term discount, due to the damage it naturally does to the trust of the junket operators who “own Macau”.

2) Faster earnings growth. Look at the second chart: SJM has been driving revenues to the bottom line faster than Sands has for three consecutive quarters. From 47% of SCL’s quarterly Ebitda number, SJM is now at 61%. We expect that gap to continue to narrow until Sands manages to open Lot 5&6 with more than a handful of gaming tables. Thereafter, the gap will probably widen again, but only until SJM gets its own Cotai properties open, whereupon we think the gap will start closing again.

3) Little or no downside risk remaining. Seriously, what could go wrong at SJM? An SEC or DOJ indictment? Difficulty securing workers for construction and operation of new projects? Approval for new gaming tables under the cap? Obstacles to concession renewal in 2020? We just don’t see it. Management is secure, shareholders are relatively happy and will remain that way while dividend payouts keep rising. Meanwhile, the Gold Group is powering the VIP business while the Grand Lisboa continues to whup the Venetian in yield per mass table. This company knows how to operate in the world’s biggest, fastest-growing gaming market, not just for today, but tomorrow, next year and beyond 2020. And yet its stock trades at multiples significantly lower than Sands China’s. Used with permission & copyright IntelMacau.com

Fire Injured 13

August 6th, 2011

Fires in restaurants that produce flash news headlines using the word “explosion” are guaranteed to get attention. We only take notice of fires in Macau, however, that involve a single burnt-out hotel room (suggesting collection of a gaming debt) or a row of motorcycles in a street (suggesting triad skirmishes). Neither was the case at the restaurant near the Golden Dragon which injured 13. Nothing to worry about. Copyright & use with permission of IntelMacau.com

How Not to Understand Macau

August 6th, 2011
Barron’s produced a report recently that used the results of Wynn as the focus for a gush piece about Macau. We wouldn’t normally tear apart anyone else’s analysis, as it’s a bit ungentlemanly, but our CEO is currently visiting the Big Apple and seems to have gotten into a New York state of mind, so here goes.
 
Steven Sears, the report’s author, makes a common mistake that many people writing about Macau from the comfort of New York make. He talks to bankers and others who have just come back from trips to China. And so when these people, who spent their entire trip in five-star comfort, usually in Beijing, Shanghai and Hong Kong, tell him they are blown away by how much wealth they have seen, without stopping to quantify it, they get everyone’s pulses racing. This has been happening on and off in China pretty much since Marco Polo came back to Venice and allegedly shook jewels out of his robes – with a few interruptions over the eight centuries since then, of course, such as the war with Japan and the first 30 years of communist rule.
 
The next mistake he makes is a bit harder to avoid for novice analysts of Macau. He assumes that it is the rise of China’s middle class that is driving Macau’s growth in gaming revenues. In fact, it is the rise of China’s newly rich elite and the spread of wealth at the bottom of the pyramid among the underclass, not the middle class, that is driving Macau’s growth. China’s middle class is more sensible, like their Hong Kong cousins who come to Macau quite frequently, but prefer to visit the A-Ma temple and buy snacks in old Taipa village before throwing down a few hundred just for fun on the tables. In contrast to the new elite, these people work hard for their money and are not about to squander it on a fool’s errand. And as China’s economy develops further, they will become more and more like the Hong Kong model, and the US model before that, of sophisticated spenders on a wide range of entertainment options. (And Macau will start to realise that Lawrence Ho’s decision to stick with the House of Dancing Water was the correct one, and Steve Wynn’s decision to build a Golden Tree instead was the wrong one.)
 
The new elite, by contrast, are mostly people who have made their money in fabulously short time, and often by means that would not hold up well to scrutiny by tax collectors. So it’s fair to say that their motivation to get money out through the junkets in Macau is not always as fun-seeking as it is portrayed. We’re not saying they don’t have fun while they are in Macau, but that their reasons for being here are a bit more complicated than simply wanting to joust with the gods.
 
It is the people at the bottom of the ladder who have been the main drivers of the mass market – the real mass market – to date. These are  people who really shouldn’t be gambling in Macau. But economic reforms of the past 30 years have put a bit more disposable income in their pockets and so they can’t resist the lure of a jackpot, placing one more bet that might take them away from the daily grind forever. They comprise more than two-thirds of the visitor market to Macau – people who don’t stay in a hotel room. If ever the Macau government were to implement a serious policy forcing the casinos to introduce strict guidelines on responsible gaming, this market might – just might – be affected. (And yes, if all you clever dicks in the casino marketing teams are about to sneer that we don’t understand premium mass, we will add that we understand it plenty well, which is why we are talking about the “real” mass market here.)
 
The third and final mistake the report’s author makes is to pick an American stock on which to focus, simply because it is a name that American investors can pronounce and identify with. In choosing Wynn, Sears seems to have swallowed the hook put out by the company that, yes, its stock might be carrying a big premium over the competition right now, but its Cotai resort hasn’t been factored into the equation yet. This is simply lazy. More in-depth research would produce a far more intelligible argument in favour of Melco-Crown (MPEL) at the moment, if the investor wants a US-listed stock, or SJM, if they are able to venture beyond the limits of Mike Bloomberg’s city.
 
No offense, Stephen. We’re just trying to give our subscribers their money’s worth. Please stay tuned. Copyright & use with permission IntelMacau.com

BGL Lesson 31 is now available :: Tōngxìn láizì Shīchéng

July 30th, 2011

The first information just arrived from the Lion City of Singapore! In this lesson, we get to hear from MiZi, an American born Chinese who seems to have found his Queen of Diamonds and she recruited a group of beauties that must turn the heads of everyone at the casinos here. Study the three shoes that was played within the three hours and the victorious results using Xuan Zin’s Baccarat Great Learning.  Go to Lesson 31 now.

 

Wynn outperform in Q2’11

July 22nd, 2011
There is no better operator in the world of gaming, to be sure. Steve Wynn runs a slick, profitable operation, based on a dedication to quality that no one can match – not Sands, not Melco-Crown, not Galaxy, and most certainly not MGM, try though they might. What he does with what he has is a feat that others – even those that used to work for him and have since moved to his rivals – can only admire and envy. This was again in evidence with his Q2 results reported overnight in New York: Ebitda of US$314m for the Macau operation (before royalties) was well ahead of most analysts’ forecasts. Pound for pound, table for table, he’s still No. 1. 
 
Wynn Macau’s stock price took off in early Hong Kong trading, unsurprisingly. We do note, however, that at least two respected analysts, Praveen Choudhary of Morgan Stanley and Gary Pinge of Macquarie, wrote less than jubilant notes following the results announcement. And we have to say that we are starting to concur with their views. It’s a well-run company, but the growth story is sounding tired. 
 
To be sure, there is no way we would bet against Wynn. Although his VIP revenues in Q2 grew mostly in line with the market, his mass business continues to show eye-catching growth. So much so, in fact, that we have to wonder about how much of that business is really walk-in players as opposed to those brought in on marketing programs of some kind. Bur we would never voice such a suggestion out loud, as we have absolutely no evidence to back it up. Suffice to say that his mass floor is doing remarkably well. Almost as well as the Grand Lisboa, we would suspect. And way, way better than MGM, pre- or post-IPO. 
 
Moreover, we don’t yet believe that Wynn’s Macau property faces any threat whatsoever from the new Galaxy Macau resort in Cotai, which is doing about half the level of his mass business since opening two months ago. If anything, GM is proving that Cotai properties are a different breed than those on the peninsula: they have to build their own loyalty bases among visitors who prefer not to move between several properties on a trip. Nice though that property is, it is clearly not making inroads at the high end of the mass market, an area dominated by Wynn. 
 
However, Galaxy Macau is not Lot 5&6. We wrote a special report on the mass market more than 18 months ago in which we predicted that the opening of the new Galaxy property this year would not be Cotai’s watershed event. That moment would come only when Lot 5&6 opens, we said, and we stand by that prediction. Once the Venetian and Four Seasons/Plaza are connected by air-conditioned walkway to another 6,000 hotel rooms, plus retail, plus convention space, plus plus across the road, then Cotai will have a behemoth big enough and diverse enough to challenge the connectivity of the Lisboa/Wynn/MGM/L’Arc/Starworld cluster on the peninsula. 
 
Which might explain why Wynn has been trying so hard recently to keep expectations pumped about his own plans for Cotai. It’s not about the next year or three. He has more than enough capacity at his peninsula property to keep pumping out great results as this market goes from strength to strength. But Lot 5&6 will likely start to open in phases next year, while his project’s beautiful plans are still stuck firmly on the drawing board. It must be driving the man crazy. 
 
Judging by his recent indiscretions, it obviously is. Again on the conference call with analysts, he declared that his Cotai resort will have 500 gaming tables on it. This is barely weeks after the Land Secretary, Lau Si You, publicly rebuked Lawrence Ho for declaring that Macao Studio City will have 400 gaming tables, when nothing has yet been approved by the government. There is clearly nothing that Wynn can do to make his land, let alone his casino, wind its way into the government gazette right now. Not the US$200m pledge to Macau University (half of which we notice was absorbed in these results). Not the US$12m paid for the vases. Nada.
 
We sincerely hope nobody takes us the wrong way on this. We do not wish Wynn difficulties. He has done much to raise the international profile of Macau since investing here in the 2002 concession bidding process. He has raised the bar for everyone in this market, and in this region, with the quality of the product and service he offers. And yes, he has made a lot of money here. But to assume that this means he – and all the others clamouring for land in Cotai – will be guaranteed hundreds of new gaming tables for any new project going forward is to assume a lot, in our humble opinion. 
 
So yes, we can understand why Pinge and Choudhary are saying the stock is fairly valued. Stay tuned for more. Copyright and used with permission of IntelMacau.com

Fisherman’s Wharf ready and willing

July 9th, 2011

David Chow knows how to time his reappearances in public. The boss of the Landmark and Fisherman’s Wharf, plus the Legendale Hotel in Beijing, has been low-key for some time. But yesterday, just as the Land Secretary was making his point in the Legislative Assembly chamber (where Chow should have been), an interview with him appeared in the Oumun Yatbo (Macao Daily), in which he announced that his own redevelopment plan, for Fisherman’s Wharf, had been approved. Not a peep was made about the casino, of course. It was all about how he’s going to build new hotels, one four-star and one six-star.

Because there will be no new hotel projects in 2012 on the Cotai strip, besides the three on Lot 5&6, Chow said, he would be willing to speed up construction of his project to get it completed by the end of next year. How gracious of him, we thought. But that’s not all. He’s going to have a “dinosaur pavilion” which will display artifacts from the mainland worth, get this, 3 billion yuan. And Nam Kwong, the first state-owned enterprise ever established outside China by the Party, will hold a “yacht exhibition” at his wharf this October.

Now there’s someone who gets the message loud and clear from up north. Used with permission & copyright IntelMacau.com

Professor says Macau needs junket reform

July 9th, 2011

Nelson Rose, a visiting professor at Macau University and an apparent expert in gaming regulation, gave an extensive interview to the Macau Daily Times in today’s edition. In a nutshell, Rose seemed to be saying that Macau’s gaming industry is not very well regulated and the junkets are a historical accident that the casinos would rather do without.

Now, before anyone falls off their seat laughing, we would caution that none of what Rose says is necessarily untrue. He might be mistaken in his assessment of the pros and cons of having junkets in Macau indeed, we chuckled especially hard at the part where he says he cannot see any advantage to having junkets now that the casinos have the ability to grant credit themselves but the facts are pretty indisputable. It’s true the government could have gotten rid of the third-party casino operators under the SJM banner in 1999. It’s also true that it would have been very difficult.

The only historical timeline where we think Rose may have done readers a disservice by stopping a bit short was when he was asked about the similarity of the Macau and Nevada gaming regulatory systems. Saying they are both very old and new, he reckons Macau’s dates back “at least” to the beginning of the 20th century and the imposition of the monopoly (the original one under the Fu family). We would argue that it goes way back beyond that, to the founding of certain organizations that have always played a vital role in maintaining the peace and stability of this territory. They might bicker among themselves now and then, but without them, Macau would simply not be what it is today. Stay tuned. Used with permission & copyright IntelMacau.com

Galaxy is gearing up for more

June 25th, 2011
Galaxy Entertainment Group CFO Bob Drake is now officially a veteran of the media game. For a guy who was camera-shy in the extreme a few years ago, he now knows how to handle the press corps with aplomb. The latest example of this was his interview with Bloomberg, in which he confidently predicted the Galaxy Macau resort would be paid off in six years and, if current trends continue, the group will “announce (expansion) plans sooner rather than later”. In other words, stew on that, all ye skeptics: we’re open barely a month and I can already call out where exactly we are going to smack this pitch over the fence.

We admire the big guy’s bravado. We also think he’s on the right side of history. If we were Galaxy, we would be building like crazy while we still can and our competitors cannot. While the guys at Wynn, MGM and SJM fume over their land allocations, every day counts on Cotai.
Here is what we see. The group doesn’t face concerns (in our opinion) about license renewal after 2022; it has a massive land bank; the GGR forecast needle is pointing firmly upwards; and even if the table cap stays in place, if Galaxy can get construction on Phase 2 going fast enough, it might just be able to steal the march on others like Macao Studio City and Sands China’s Lot 5+6 when new tables are allocated after 2013.

What does Galaxy need? Duh! It needs more rooms. Even once the rest of the Galaxy Macau hotel rooms come online in a few months, the resort needs more, and more affordable rooms on its land bank. Getting day-trippers is the easy part: overnight guests are where the juiciest apples are – but they are a bit higher up the tree.
And it needs shops. Maybe an entertainment center, but a multipurpose one rather than a custom-built (and expensive) one. And something cultural, to please the Mandarins from Beijing. But that should be enough, for now.

Let’s see what Francis Lui comes up with. Used with permission & copyright IntelMacau.com


Bill passes first reading to raise minimum age in casinos

June 19th, 2011 
The bill raising the minimum age of people allowed into casinos staff and patrons alike passed its first reading at the Legislative Assembly yesterday, as reported by the Macau Daily Times today. It seems inevitable that, despite objections from lawmakers who usually object to the government's bills, anyone under the age of 18 will not be allowed onto the casino floors. How do we come up with such a confident prediction? 

Well, for a simple reason. It makes legislators like Angela Leong and Chan Chak-mo look benevolent. To whit: There are more and more youngsters entering casinos and becoming pathological gamblers, Leong said. This law is inevitable and it's urgent to regulate this issue. It will be good to protect our youth, so they have less opportunity to be in touch with gaming. And Chan: "Do we want all of our kids to end up as card dealers?" These are the same people, keep in mind, who watered down the anti-smoking legislation. So protecting frontline 18-21-year-olds from the dangers of second-hand smoke is clearly not as big a concern for them. 

But this legislation also will keep 18-21-year-olds from outside Macau out of their casinos, too, so we suppose they ought to be lauded for their self-sacrifice to a certain extent, too. This will hit their revenues. Naturally, we can hear the question on your minds, dear readers: if 18-21s are going to be banned from gambling, which concessionaire will this affect most? Our colleagues at Market Insights Macau are on the case, and will provide an update on this before the bill is passed, so stay tuned.  Use with permission & copyright IntelMacau.com
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