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Macau's Top Dogs.

Last edit: macauman on Tuesday, 1st April 2008 5:50 pm
Last response by mgmfan 22nd April 9:30pm

According to the Lusa news agency, the
Macau gaming market generated about 10.1 billion
patacas (~$1.3 billion) in March. This implies 60%
growth for the month and 62% growth for 1Q08, ahead
of our 30–40% growth forecast for the quarter (we
projected growth before knowing about the weather
issues in January and February). In addition, the
newspaper reported market share for the operators (in
order): 1) SJM – slightly below 30%; 2) LVS – assume
19%; 3) Melco-PBL – between 18 and 19%; 4) Wynn –
calculate 16%; 5&6) Galaxy and MGM – reportedly
single digits, assume both 9%.


Data obtained by the agency Lusa with the intersection of information from various operators in the sector of the game in Macao indicate that the March revenue reached 10.1 billion patacas, 60% more than in the established same month of 2007.

In individual examination, the Sociedade de Jogos de Macau, the magnate Stanley Ho, still leading the market with ample advantage over other operators, although the share of the company has fallen slightly below 30%, share that the company expects to maintain over year.

The first quarter of 2008 is highlighted by the growth of the gross revenue of the joint venture Melco / PBL, Lawrence Ho, son of Stanley Ho, who said as a third operator, with similar quota - between 18% and 19% - to the Las Vegas Sands, which operates the world's two largest casinos in Macau.

The Wynn Resorts is now the fourth largest operator of Macao in terms of gross revenue, with a large advantage on the Galaxy and MGM, which have slices of the market below two digits.

Revenue in the game of Macao in the first three months of 2008 came close to the 30.3 billion patacas recorded throughout the year 2003, when revenues recorded growth above 60%.

Besides the strong high revenue Gross gaming casino in the month of March was marked by a record daily gross revenue exceeding 700 million patacas ($ 152 million).

---

By the way, the above market share statistics are for the enitre first 3 months of 2008. For March alone the stats are even more interesting for those who are investors in Melco-PBL (MPEL).

An analyst's notes:
Based on data from Lusa and our sources, Melco's market share grew from approximately 18% in February 2008 to over 25% in March 2008, while Las Vegas Sands market share declined from approximately 22% in February 2008 to just under 18% in March 2008.

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 jcdarosa responded on Tuesday, 1st April 2008

I read a few analyst reports that said the same thing, but I had a bit of trouble finding the original 'Lusa' source, as I believe it is in Portuguese?

Anyway, which analyst was it exactly that said Melco's market share rose to 25% in March?

I'd like to look it up. Thanks

 macauman replied on Wednesday, 2nd April 2008

Ask and Ye shall receive. It was Lehman Brothers' analyst, Felicia Hendrix, that said the Crown Macau's market share for March is now 25%, according to Lusa news agency and other sources in Macau.

For some reason it won't link properly, so if you care to see it, you can follow these instructions:

Go to: http://www.lusanews.net/

Click on: Mais Noticias, (Under the "Outros Destaques" section)

And the link should be about half-way down the page in the April 1, 2008 Section. (I couldn't find an english version)
===================================================== ================

My Portuguese is a little rusty, so this is what Google Translation comes up with (It looks like MPEL is currently running neck & neck with Las Vegas Sands for the number 2 spot):

Macau, China, 1 º Apr (Lusa) - The casinos of Macao companies recorded in the first quarter of 2008, gross revenue of about 29.8 billion patacas ($ 6.5 billion) - an increase of 62% in comparison with the first quarter of last year and equivalent to 98.3% of 2003.

Data obtained by the agency Lusa with the intersection of information from various operators in the sector of the game in Macao indicate that the March revenue reached 10.1 billion patacas ($ 2.2 billion), 60% more than in the established same month of 2007.

In individual examination, the Sociedade de Jogos de Macau, the magnate Stanley Ho, still leading the market with ample advantage over other operators, although the share of the company has fallen slightly below 30%, share that the company expects to maintain over year.

The first quarter of 2008 is highlighted by the growth of the gross revenue of the joint venture Melco / PBL, Lawrence Ho, son of Stanley Ho, who said as a third operator, with similar quota - between 18% and 19% - to the Las Vegas Sands, which operates the world's two largest casinos in Macau.

The Wynn Resorts is now the fourth largest operator of Macao in terms of gross revenue, with a large advantage on the Galaxy and MGM, which have slices of the market below two digits.

Revenue in the game of Macao in the first three months of 2008 came close to the 30.3 billion patacas ($ 6.6 billion) recorded throughout the year 2003, when revenues recorded growth above 60%.

Besides the strong high revenue Gross gaming casino in the month of March was marked by a record daily gross revenue exceeding 700 million patacas ($ 152 million).

The government of Macao Special charge a tax of 35% on gross revenue of the operators of the game, plus other indirect taxes of about 4%.

Analysts in the sector of the game in Macao show - even conservative forecast due to the volatility of the market - that the gross revenue in 2008 will range between 125 and 135 billion patacas (between $ 272 billion and $ 294 billion), taking into account not only the game in casinos, but also other forms of gambling that have not been counted as revenue disclosed for the first quarter.
================================================================

This link may interest you as well:
http://www.chron.com/disp/story.mpl/ap/fn/5665037.html
===============================================================

In a recent presentation at the CSFB conference in Asia, MPEL mgmt. noted these comment recently:

Capacity limit is a concern. Currently still converting more hotel rooms to VIP gaming rooms. However, City of Dreams will open in 1H09, and will take over the excess demand. Construction of City of Dreams is on schedule and on budget. Management believes that once the City of Dreams and other casinos in Cotai are ready, they will attract enough critical mass. Management expects City of Dreams to capture a 7-8% market share. Based on Venetian Macau’s current market share of about 18%, together with MPEL’s strong presence in the high-roller segment, we believe such a target is achievable. In terms of serviced apartments, management’s strategy is to let LVS start the ball rolling, as LVS’s Four Seasons is about 80% completed, while Melco’s has just started construction.
============================================================
That should get you up to speed. A whopping 25% market share in March!! WOW...Now that is impressive. Hasn't Macau now passed the entire state of Nevada in gaming revenue.

 jcdarosa responded on Wednesday, 2nd April 2008

Hi macauman,

Thanks for all that info. It was very helpful. I am still a bit confused as to where you found Felicia Hendrix's 25% market share estimate of MPEL for March, because the article you linked on lusanews doesn't mention it. It says that MPEL and LVS are battling it out and have 18-19% share each for the 1st quarter, but it doesn't mention the Lehman Brothers analyst's 25% market share estimate for March for MPEL.

 macauman replied on Wednesday, 2nd April 2008

You need access to Lehman's equities research to view her updates. Sorry, there is no link. I'm sure it'll be all over the macau newspapers and websites soon enough to provide you with further verification.

 jcdarosa responded on Wednesday, 2nd April 2008

Thanks macauman. I take it you are an investor in MPEL too? What is your PT for the stock?

 macauman replied on Wednesday, 2nd April 2008

Yes. Using comparison multiples of other Macau operators, I have a current price target of b/t 22 and 26. Less not forget they will be selling approx. 1.6 million sq.ft. of apartment space right on a prime spot of the Cotai Strip in late 2009' to early 2010', which should bring in revenues of over US$1.5 Billion. (The company itself is trading for slightly over $5 Billion). That will help pay for a large portion of the entire City of Dreams casino project and clear up all their debt. I don't see too much risk here, and potential large upside. Not many retail investors know of the recent progress in MPEL, if they have even heard of them at all.

 jcdarosa responded on Wednesday, 2nd April 2008

Not only retail investors; MPEL is not closely followed by many brokerages either. When do you think MPEL will get followed as closely as WYNN, LVS, MGM etc. Many research reports get released that only mention the 'American' companies. Do you think MPEL will start to get that level of attention only when it starts making a profit...do you think it ever will?

 macauman replied on Wednesday, 2nd April 2008

Well, it appears the U.S. economy is in or heading towards a recession. Although "sin stocks" in the casino industry are holding up okay, it is mainly b/c of their Macau exposure. I recall hearing lots of reports that Vegas and other gaming operators located in the U.S. aren't doing so great right now, contrary to the belief that people pull the slot machine handle more when they are broke. What's holding them afloat is their casinos in Macau. With the Macau market growing 60% in March year over year.

Being the "pure play" on Macau and with the Crown's market share growing like a weed, and no major new casinos coming on line in 2008 (allowing some absorbtion to take place), I don't think it'll be too much longer before MelcoPBL is more well known and understood. You have to realize they have only been a public company for a few years, and the average person has never heard of Macau. I think it will get more attention when it turns a profit, the U.S. economy continues to slow down, and the Cotai Strip gets more built out, and becomes even more of an international hotspot. Despite having a share price around $13, many analysts still have price targets in the $22-24 ballpark, which is quite unusual. Most of them don't usually stick their neck out that far, suggesting anywhere near a 100% return.

I think having a bit of patience and waiting till at least middle to the end of 09' will produce very positive results. Perhaps, much sooner when people realize they are very close to being the leader in market share (currently occupied by SJM) and only having a single casino in operation. And the casino isn't even anywhere near the largest in Macau. Venetian Macau is the largest in the entire world and Crown has surpassed them. SJM has, I dunno, 20 casinos?, and the Crown is very close to catching them as well. Give it time.

 jcdarosa responded on Wednesday, 2nd April 2008

I agree completely. I think the main driver will be them turning to profit. So far, every quarter has been a loss, and I believe that some institutional investors have strict guidelines about which stocks they can invest in. For many, turning to profit might be one of the requirements. I believe that we will see an immediate peak when 1st Q earnings are released, or perhaps a day or two before. I think it will reach maybe around $18-20, and then fall back gradually and settle around $15 for several months. So, I think short-term there is a lot of room for growth, but I think it would be best to sell if it reaches anywhere around $20, as I think it will retreat for the weeks after.

This quarter will have phenomenal numbers, but that is largely influenced by the very high hold rate (3%) that they had for Jan and Feb (March unknown). In subsequent quarters they will not be able to retain that 'luck', and analysts will (and already have) take this into account. Short-term, buy it up until earnings, then sell soon after. Long-term, it may take a while before it goes back up to 1Q prices.

 macauman replied on Thursday, 3rd April 2008

My crystal ball doesn't work too well in the short-term. Though I think there is plenty of potential in the long-run, especially once the City of Dreams build out is complete. Good luck.

~Chuck, if you read this thread, I didn't mean to turn your blog into and investment forum. My bad.

 Chuckmonster replied on Thursday, 3rd April 2008

go nuts guys. the board exists to discuss macau stuff: joints, food, travel, business, investment - the whole schmear.

 jcdarosa responded on Thursday, 3rd April 2008

The main thing that's bothering me is the reliablity of the 25% figure. Not that I don't trust you macauman, but I am doubting the reliablity of the Lehman analyst's sources. Supposedly she used the same article as the one you translated from LUSA news to come up with that conclusion, but from what I can see, there is no mention of MPEL's 25% market share in March.She also supposedly used 'other sources' in Macau, but again, I don't know how reliable these sources are.

Of course, if that was true, MPEL's stock is in for a wild upward ride!

 macauman replied on Thursday, 3rd April 2008

I tell ya, I often wonder how all these Portuguese news sites and papers seem to have minute by minute market share stats. (Is there a leak, do they review bi-monthly gaming tax figures somewhow?)I question the figure too, to tell you the truth.

In fact, not long ago I listened to a Sheldon Adelson interview, where he was asked to comment on his dwindling market share according to various sources, and he replied by saying how he doesn't know how these sources are getting this info. More often than not, I've found that macaudailytimes' early market share stats usually tend to be pretty much on the money. I've never heard of Lusa News till this week. I'm hoping Lusa is credible and the Lehman analyst did a bit of due dilligence. Their website wasn't too impressive. I guess we'll know soon enough.

 jcdarosa responded on Thursday, 3rd April 2008

I agree. I've been checking macaudailytimes everyday to see if they have posted their own market share figures because I believe them more than LUSA news. So far, they haven't mentioned anything about March market share, but I'll be checking, and I'll let you know if they do post an article in the near future.

 mgmfan responded on Tuesday, 22nd April 2008

Higher market share does not necessarily mean larger profit. Look at the commission they are offering AMAX. Think about how junket deals are made and how they operate. I personally think such a heavy reliance on junket business is not good in the long run.