Overall, there is much for the Big Six to be happy with from May, as everyone benefited from the rising tide washing out of the mainland. Wynn did a bit more, thanks to Encore, but moving from 14% to 16% of the market might also have something to do with it being, in the words of its founder, a “more Chinese company” since the Hong Kong IPO.

To be sure, it is unarguable that the biggest gainers from the recent runup in volumes, which absolutely exploded in May, are the “Chinese” companies established in Macau. (Never mind Wynn; he’s in a different ethnic group altogether.) The troublesome Israeli-Americans are having a whale of a time on their mass floors, and the two half-breeds are holding their own with a mixture of rolling-chip and mass, but the really big rolling-chip numbers are being clocked up by the SJM satellite casinos and, to some extent, StarWorld. Which means that the really, really big winners at the moment are the guys who are holding between 40 and 57.5 per cent of revenues passing through their cages: Jimei (unlisted as yet), Neptune, Dore, Sun City and all the rest of the, ahem, intermediaries who make Macau such an important cog in the rising economic machine of China. Loyalty counts; patriotism pays.

At the top of this patriotic pyramid sits a company that currently trades at half the valuation of its peers. Even despite the runup in its shares this week since the AGM, when it punched through the HK$5.25 mark at which its convertible bonds kick in, SJM is a steal by anyone’s reckoning. CEO Ambrose So said he thinks the market can do more than MOP150bn this year and people gasped. We think he’s being ultra-conservative: Macau has already done more than MOP70bn in the first five months, and the trajectory is pointing sharply upwards – anywhere between MOP170bn and MOP190bn would not be unthinkable if the current liquidity conditions are maintained. You heard it speculated here first.

The question is whether the current liquidity conditions can be maintained. At the moment, here is what we see happening: 1) Regulatory uncertainty in China — 2) Money needing a safe haven — 3) Money ending up offshore, but with nowhere to go — 4) Junkets offering double-digit returns on investment compared to less than 1 per cent at the local bank and risky Hong Kong stock and property markets — 5) Surging credit lines fueling surging rolling-chip volumes — 6) Outsized returns for the junkets — 7) Repeat Steps 3 to 6.

Not a day goes by when we don’t hear someone say, as if on cue, “But this is too hot; Beijing is bound to crack down.” Anyone who says that does not understand the fundamentals of what is going on right now in Macau. The foreigners are getting their piece of the action, no doubt. But at its core, this is a grand case of Chinese paying Chinese and everyone making hay while the sun shines. Guangdong is happy: all the irritants that preceded the mid-2008 crackdown have been removed, the periphery knows better how to behave appropriately in dealing with the center, and there is harmony in the land – or, at least, in this corner of it.

And while everyone is getting paid, a single company is getting a piece of one in every three transactions. Granted, it might not be as big a piece as it used to be, but the pile onto which every piece gets tossed is growing bigger than it ever could have been imagined back when SJM, then STDM, was forced to give up its monopoly.

Now, we have to admit that there are three good reasons why SJM’s share price has always traded at such a steep discount to its peers. One is the relative lack of transparency in its reporting, which was a fair accusation until last week when it released 1Q10 results. The other was the pitiful number of shares in circulation, which has finally been addressed by the convertible bond kicking in. The third has been touted by international fund managers as being the biggest reason: uncertainty over the succession plan in the event of Stanley Ho passing away.

So here is what we think these fund managers need to be asking themselves right now. What if the succession plan has been decided? How much should that erase from the discount? Because from where we sit, it is as decided as it is ever going to be. This was apparent at Monday’s AGM. Dr So runs the show, his co-directors, including Wife No. 4, play an important role in how that show is run, and the royal family will control the proxy votes of STDM, keeping the management team under close observation. The satellite casinos have the sweetest rental deals in town, as do the junkets operating at the Lisboas, so no one is splitting anytime soon. Everyone in this picture is mutually incentivized to get along, and STDM/SJM has the blessing of Zhongnanhai as long as they continue to do so. We wish Dr Ho the best of health, but we, for one, no longer fret about his passing.

Used with permission & copyright to IntelMacau.com