Here are some photos I took during my recent Macau sojourn. These are mostly street photography of Macau using a rangefinder camera, the Leica M8. Featuring local & tourists in the small city with big dream.

You can view the full gallery here

Someone once said that it is every woman’s inalienable right to change her mind about what to wear. We think we ought to borrow from such timeless wisdom and change our minds about the Macau gaming sector now that we have seen the latest results from SJM.

It’s not a eureka moment. This has been building steadily over the past year, nagging at us like a spouse in a seven-year marriage. Until now, we had been firm believers in the mantra that Ebitda is Everything. As long as a company has positive cashflow with which to reinvest in a booming market like Macau, it should, to quote Barack Obama, own the future. But now we are starting to better understand the wisdom of common Chinese corporate philosophy that cash, rather than cashflow, is king over the longer term. And it’s not so much what you do as who you do it with that counts in the world of Chinese business, which is what the Macau gaming sector is an extension of.

Indeed, over the past year, SJM has shown itself, in our newly formed mind, to be a significantly superior operator to Sands China, and at least on par with Wynn Macau. It’s not just because it has better guanxi across the border although this is indeed an important factor in its success. It is also because the company has, by luck or by wisdom regardless, positioned itself to become the biggest beneficiary of the market’s surge since visa restrictions were lifted and bank stimulus spending initiated in mid-2009.

The numbers say it all. Net profit nearly quadruples in 12 months to US$450m. Ebitda margins are widened as self-owned properties raise their contribution, leading in 4Q to a 21% QoQ jump in Ebitda. Grand Lisboa vastly outperforms the market, growing revenues 40% QoQ on an Ebitda margin of 26% the same as Sands Macao over 2010 and undergoes a big expansion of VIP and premium-mass tables. Dividend payout of 50%. Net cash balance of HK$10bn so no bank lending needed for the next Cotai project.

In sum, SJM has the cash with which to reward shareholders, and the cash with which to expand quickly in Cotai once it gets its land approved. And it has achieved this despite we reiterate despite having to give away an extraordinary amount of its revenues to its third-party partners and its dominant junket operator.

And yet, the stock continues to trade at a 40% discount to its peers. That’s right, 40%. Not 4%. Nearly half what its competitors trade at.

For this, we have to try to understand the perceived wisdom of analysts such as those clever chappies at CLSA, who say that SJM will always trade at such a discount because of the Ho family and its constant squabbling over ownership rights. Sorry, but this is one argument that needs shredding.

Look, people, SJM has always been embroiled in disputes over ownership. Right back to its founding, when Yip Hon, Teddy Yip and Henry Fok put up most of the cash and connections, and then bitched for two decades at Stanley Ho about the way he ran the business until Cheng Yu-tung came in and bought out Yip Hon in an acrimonious public-relations battle. Then Stanley’s sister entered the fray, arguing that he had bilked her of dividends and diluted her shares by “losing” the shareholders’ registry. The current struggle among No. 2, 3 and 4 wives and the family of the late No. 1 is just part of a long tradition. It has never affected the business model. Insiders take what they can, and  shareholders take what they can get: this is the way SJM (nee STDM) has always been run, and it seems to somehow have worked.

In fact, we would have to say that the company is now looking better than ever in terms of its management’s focus on improving returns for all shareholders, rather than just those shareholders who happen to own third-party casinos and junkets within the SJM umbrella. As we have previously noted, the net result of the recent family war is that neither side can act unilaterally. We are more confident than we have ever been that the Cotai projects will not be run as extensions of No. 4’s part of the business, but as genuine mass-market resorts with wide Ebitda margins that contribute the kind of revenues to the company’s bottom line that the Grand Lisboa currently does.

To be fair, it would be impossible to close any discussion of the performance and outlook for SJM without noting the obvious fact that its results of the past year would have been impossible without political support from across the border. In a year when VIP revenues surged overall by 70% while mass grew just 13%, SJM was clearly the biggest winner, with VIP revenues up 95% and rolling-chip volumes up 88%. Sands China, by contrast, saw its roll numbers rise just 18%. On the mass business, too, SJM jumped 10.5% to Sands’ 1.67%. That’s not a fair game, by anyone’s standards. We admire Sands management for wringing whatever costs they can out of their business and growing Ebitda margins the way they have, but in the revenue stakes, they have clearly been left behind by SJM in a surging, state-directed market.

But at the same time, we’re not here to cry about what’s fair or not. We like the advantage SJM has in the political wars just as much as the commercial wars. And we believe it is absurd that the company’s stock should still trade at such a massive discount to its peers. It is not facing any regulatory probes of its business, it has no problem dealing with junkets, it is sitting on a huge pile of cash, and half of every dollar it nets ends up in its shareholders’ pockets. Most importantly, if it can run the Grand Lisboa so successfully, imagine what it can do in Cotai. Stay tuned.

Used with permission & copyright IntelMacau

The event of the year in Macau is nearly upon us, as Galaxy Entertainment Group announced yesterday the opening date for its new Galaxy Macau integrated resort on Cotai: May 15.

Yes, you heard right, that is two weeks after the May 1 Golden Week period begins. Correct, Galaxy Macau will miss one of the three busiest times of the year for the mass market in Macau. But when you have spent nearly a decade planning this event, what is another few weeks, anyway?

At least, that is how we are sure the Lui family is viewing the opening of their resort, and they are probably right to do so. Lui Che-woo didn’t become a billionaire doing business in Hong Kong and China by thinking short-term. As the slogan “World Class, Asian Heart” makes clear, this is a Chinese company (although don’t tell the Japanese guests at Okura that). This property was a long time in the making. Even though we found the press release yesterday a bit too convoluted in trying to explain why this is the first true integrated “resort” in Macau, we cannot quibble with the claim that this is the first integrated resort in Macau that has been designed with an Asian audience primarily in mind. We think, as we have said before, that this will be half the battle won when the doors open on May 15, and if the company needs a bit longer to let the paint dry before that happens, then it’s a good decision.

See you there on opening day.

Used with permission & copyright IntelMacau

PokerStars Macau at Casino Grand Lisboa launched the Macau Poker Cup (MPC) this week which runs from February 21-27.

Event 1, the Charity Event, had 139 players and a prize pool of HKD $291,263 which are both new records for this long running MPC tournament.

Hong Kong’s Roy Wan was the winner and collected HKD $60,300 and a HKD $11,000 Red Dragon main event entry for his victory.

The Charity event raised HKD $69,500 for Caritas de Macau who are the leading social services organization of Macau. The worthy cause brought out the likes of Team PokerStars PRO: Asia players Bryan Huang, Raymond Wu, and Celina Lin. UK’s Team PokerStars PRO: Online and popular blogger Dale Philip also joined the opening event.

Huang, the defending Asia Player of the Year (APOY), looked comfortable heading into the final three with a chip lead. However, it would be Wan who would knock out Japan’s Shingo Cho and gain the chip advantage entering heads up play.

Huang went all-in on a flop of 7-5-4 and was called. Huang held 65o for the middle pair and open ended straight draw. Wan had T7s for top pair and that would hold for the win.

Photo used and copyright to PokerStars Macau

See our CNY 2011 photo album for more photos.

There’s never a dull moment in this town as the Ho family saga reveals further twists and turns.

According to the latest report from SCMP, Billionaire Stanley Ho Hung-sun filed a lawsuit on Thursday morning accusing five of his children, two of his four mistresses and his long-time banker of “improperly and/or illegally” seizing control of the company that controls the bulk of his massive fortune.

In anticipation to the auspicious date of 11-1-2011, Baccarat Great Learning presents to you Lesson 29 :: Wǔgèyītiān Hǎohǎozhàotóu Jīnshǔtùnián. The literal translation is 5-Ones Day, Super Good Signs in the Year of the Metal Rabbit. Be sure to check out this special Lesson, in collaboration with Big Eye Guy ! Be a player, not gambler.

It looks like 2010 is going to end with a bang, with gross gaming revenues breaking the all-time record for a month and possibly set to smash the MOP20 bn mark. We will find out in a few days, but we thought it best to sound a slightly triumphant note as we ring out 2010 and prepare for another prosperous year ahead in Macau.

It’s been quite a year, for sure, but we think there is still plenty of running ahead of us. There is never a dull moment in this amazing town, and 2011 promises more of the same: the same drama, the same unpredictability in politics (corporate and family), and the same restless change. Here’s what we see as potentially the top issues to watch out for.

1) Gross gaming revenues will soar GGR will hit MOP27bn a month. Just watch it. Inflation is not a problem for Macau, which is being held up as a poster boy of brotherly love for Taiwan. It’s not about the number of gamblers, either. It’s about all the liquidity sloshing around the region, which is making it’s way into the junkets and the pockets of rich, well-connected individuals in and around Greater China. They are facilitating the outflow of money from the mainland which needs to be cleaned and recycled, and Macau is playing a vital role in this – and taking its 2.97% cut in the process.

2) Visitor arrivals will slow Macau is hitting saturation point in it’s immediate hinterland. Look at the November arrival numbers: up just 6.5% YOY. Which means expectations for the mass market are probably getting ahead of themselves. The high-speed railway arriving in Zhuhai is almost two years away, so don’t expect miracles from that in the coming year. The extension of the Guangzhou MRT system, which terminates in downtown Zhuhai (not near Gongbei), will likely impact the inter-city buses, but not passengers bound for Macau, for whom convenience is everything. It is supposed to open mid-year, but has also run into delays, so no one should be holding their breath. Long-distance marketing will remain a pipe dream while the Big Six continue to fight each other so childishly at the border points instead of putting their heads together and figuring out a way to do what the MGTO is not mandated to do.

3) Stanley Ho will settle his inheritance The era is passing with the man. We wish him the best of health, but it has become clear that the man who put Macau on the map as something other than a smugglers’ den is preparing to move on to that great casino in the sky. Wife No. 2 inherits the keys to the realm, but finds several doors bolted from the inside by Wife No. 4, who is now the Managing Director of SJM. That is the way it must be, we suspect, if peace and harmony are to reign throughout the land once the king is gone. As mentioned before, SJM has become the de facto Macau issuer of Treasury Bonds. It is too important a company, if that’s what one might call it, to become anyone’s fiefdom. A balance of powers is in everyone’s interest.

4) Pansy will get her IPO The rising tide is lifting all boats, including MGM Macau’s. The place has efficiency issues, but these can be easily papered over when the market is growing so strongly. We still wouldn’t give it as high an Ebitda multiple as MPEL, let alone Sands or Wynn, but we do think the IPO is a no-brainer. There’s plenty to go around in Macau now and in the foreseeable future.

5) Lawrence will get his way Yes, the rejection by Melco shareholders of his proposed compensation scheme this week for himself and his henchmen was embarrassing. Like Joe Stalin once famously observed, “The problem with elections is you never know who’s going to win them.” But we actually think this makes Lawrence Ho look a lot better than his rapacious sister, who sucked more than a billion HKD out of her concession recently without anyone noticing. He is playing fair by his shareholders, as any good corporate governance-minded CEO should be. And his concessionaire is already vastly outperforming his sister’s, too. We think it’s only a matter of time before the market realises he has actually done quite a good job with Melco-Crown under the circumstances in the last three quarters and decides to rerate his stock. He was just a bit premature with this compensation plan, which was more about his key staff than himself, anyway. Once the shareholders have started feeling some love in the stock price, we think the plan will be revived and passed.

6) Steve Jacobs will get his revenge The counter-claims filed on December 22 by Las Vegas Sands against the former Sands China president, Steve Jacobs, for his abrupt termination in August last year, are trite. We think there is a case in motion here of the Emperor being surrounded by people who won’t tell him he has no clothes. This lawsuit has already cost LVS far more than it was worth. Adelson has so much more to lose here than Jacobs does. Like the Cliff Cheong case that went to the eve of trial, Adelson will probably take this one to the brink. But we can’t see any way for this to turn out well for the company. Whether he gets paid in court or out of it, we see Jacobs getting even for his ignominious dismissal and pocketing a bunch of change. The real question is what the political ramifications will be. How much more public embarrassment can the Macau and Beijing governments take?

7) Galaxy Macau will disrupt the market There is much speculation gripping the chattering class in Macau at the moment about problems on the Galaxy Macau site, with suggestions swirling that the property is months behind schedule. Pay these rumors no heed. It won’t be a perfect opening – they never are – but it will get open before mid-year and it will be a significant disruptive force. With visitor arrivals flatlining, Galaxy will need to compete aggressively for mass players, and we have every confidence that it will. It won’t happen immediately. The Venetian and City of Dreams have big headstarts with their loyalty card programs and established brands. But Galaxy Macau has great hardware. We think it will take share from everyone and end up with at least 10-12% of the market. The only question is how much Starworld will be left with.

8) Re-ratings across the board will happen. Here’s the biggest punt of all, which we will leave to last. It is possible, very possible, that Sands will get approval to start selling the Four Seasons apartments. We’re not sure when, but if it happens this year, it would signal a watershed moment for Macau’s concessionaires. Everyone else would jump on the bandwagon, and the value of the land parcels in Cotai would go through the roof. Non-gaming projects such as Angela’s theme park would become more attractive, Galaxy would become a more serious real-estate play, and valuations would have to be adjusted upwards.

In the meantime, may we take this opportunity to wish all our subscribers a prosperous 2011. And please stay tuned.

Used with permission and copyright IntelMacau

Some might say we make our own luck in life. Others would stick to the saying, “The harder you work, the luckier you shall be.” We could believe that Steve Wynn, for one, has no truck with Lady Luck, even though it was in his joint that Frank Sinatra crooned the most famous Vegas hit of them all, “Luck be a lady tonight.”

And yet the original gaming tycoon, who built a fortune in the Nevada desert, lost much of it in a high-stakes game with Kirk Kerkorian, and then made a new one with little more than his wits, charm, a couple of billion and a devoted wife, would have to admit that the Lady can sometimes be a tramp.

In September, just as it looked like he was set for another record quarter of earnings in Macau after a strong summer, the Lady turned savagely against him in his VIP rooms. In the first two weeks, he got whacked so hard by some whales that his intra-month market share dipped below 10%. Unfortunately, the timing could not have been worse, coming just as his neighbor, MGM, had made it known to the junket industry that it was ready to play the game more aggressively, with generous revenue-share deals and front-money incentives. One piece of evidence pointed to another, and soon a few analysts were downgrading Ebitda forecasts. His property came back in the last week of the month, as the Lady perhaps realized she had been too harsh, and he ended up holding slightly above theoretical. But his competitors held better, and so his market share slumped from around 14% to 12%.

It was the kind of experience that must have drawn empathy from every one of his competitors, but especially from those who saw their rolling-chip volumes dip by a lot more from August to September. Altira was the worst, down 25% (but much may have flowed to its sister property), followed by Sands Macao at -19% and StarWorld at -16%. Even the mighty SJM was down slightly MoM and if it hadn’t been for a phenomenal performance in the premium-direct rooms at the Plaza, Sands China would have had egg on its face, too as the Venetian held poorly. Only MGM saw its roll up on a monthly basis.

To be sure, Lady Luck masked a deteriorating performance across the market in September, which is traditionally a weaker month, stuck as it is between the end of summer and the biggest month of the year. Win-hold percentages were great for everyone in September, well above theoretical in almost all cases. The market has come back staggeringly strong in October thanks to a record-breaking Golden Week but, again, we won’t know how much of that is volume-related or luck-related until we see the month-end figures.

Which brings us to this week’s apology. We have to confess that it has taken us far longer than it should have to give the brass at Melco-Crown a nod for the way they have always highlighted the luck factor in their earnings releases. We have to assume that they will not just do this in bad times, but will do it in good times, too. Like when they release their 3Q results.

To be sure, the MPEL team deserve some credit (no pun intended) for the hustle they have shown over the past quarter. It’s not enough that they have one of world’s three VIP marketing superstars in Kelvin Tan. He alone could not have accounted for the sharp rise in rolling-chip turnover at the two properties. There had to have been single-minded focus among the management team, ie, Lawrence Ho and Ted Chan, on how to punch above their weight in the VIP market. This hustle and focus was finally rewarded in September, with a record blended win-hold between Altira and City of Dreams.

Will this luck hold? That is the everlasting question, not just for MPEL but for everyone in this market. True, win-hold becomes less volatile as volumes increase. SJM will never likely see a 4% month. Yet neither will it likely see a 2% month. Galaxy tends to be less volatile, too, because it has so little premium-direct business. Indeed, as the proportion of premium-direct rises at properties such as COD and Plaza, so can we expect some more wobbly MoM performances – at least until those volumes are big enoughj in themselves to smooth out luck variations.

And so, as this US$24bn-a-year market goes to $30bn, and then to $40bn, and so on until the bubble pops (if it ever does), it would be wiser of all of us who are trying to gaze into QoQ and MoM crystal balls to have a little souvenir statue near at hand, preferably in the shape of a Marilyn Monroe figure. There is only so much hustling we – and the concessionaires – can do. The rest is up to her.

Used with permission & copyright IntelMacau

Deutsche Bank’s Karen Tang appears to have set the cat among the pigeons with a report pondering whether Wynn Macau could lose as much as a third of its average monthly rolling-chip volumes to MGM. She maintains it’s a “bear-case scenario”, but we nevertheless have to assume she means it’s possible. The basis of her rather bold claim is that Neptune and Dawei (David) are putting in tables across the road as they gear up to start running much larger amounts through MGM thanks to aggressive credit terms and generous revenue-share deals.

We have no quibble with Karen’s hypothesis. If these two junkets decide to move a significant part of their play from Wynn to MGM, the effects will be serious for the world’s most profitable casino. However, what we also have to put up for consideration is the obvious question: what then?

We can see two scenarios unfolding. First, Wynn decides to do nothing, and takes the hit to see how long it will last, preferring to keep revenue-share deals with junkets the lowest in Macau and argue the case for quality. However, doing nothing does not mean nothing will be done. Although these are powerful and important junkets, they are not the only ones in Macau. If they don’t meet their rolling-chip volume targets at Wynn, they are liable to be replaced in the food chain by other junkets who have VIP customers pushing them for seats at a Wynn table. This may take a few months to unfold, but we can see how the “wu wei” Taoist philosophy might be effective in clawing back business without needing to cut prices.

The second scenario is more likely to induce anxiety in the marketplace. It is that Steve Wynn does decide to act because the bleeding is too heavy and the other junkets who have been clamoring for his rooms hold back in anticipation of higher revenue-share deals becoming standard. There are two ways he can go. One is to raise his payments to the junkets, which we think is the least likely. The second option is that he can flip them a finger and start raising his rebates to premium-direct players. Wynn knows this is a riskier move. But he has watched Sheldon Adelson stare down junkets out in Cotai recently by ramping his premium-direct business and he cannot be more than a little envious. The truth is that as more and more mainland wealth is parked offshore through Macau, more of it is available as collateral for direct-play, reducing concerns about debt-collection in China.

Moreover, can Dawei and Neptune really afford the risk of breaking with the best-run operator in Macau? Is MGM really worth taking that big a punt on? If we look at the track record of the two companies’ management teams, we would have to say at this stage that MGM looks like an obvious flash in the pan story. Any junket choosing it over Wynn in a longer-term scenario would be nuts.

Either way, we would not be betting against Wynn just yet. The wolves might be at the door, but he has plenty of food and water – and ammunition to boot.

Used with permission and copyright to IntelMacau

Extra:  Our apologies to the diminutive yet irrepressible Karen Tang. We misquoted her yesterday. The Deutsche Bank analyst, perennial leader of the gaming analyst scoreboard run by Institutional Investor magazine, did not say that Wynn could possibly lose 30% of its VIP business to MGM. She said the two junkets being wooed accounted for 30% of Wynn”s VIP business and, in a bear-case scenario, if they moved half of their monthly roll across the road, Wynn would lose three percentage points of market share. Sorry.