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Howard Stutz

Macau gaming revenues experience smallest monthly increase in three years

4 June 2012

Only in Macau could one-month gaming revenue of $3.26 billion - more than half of what the entire Las Vegas Strip produces in a year - be termed a disappointment.

For the first time in almost three years, Macau casinos in May didn't post the double-digit monthly increase that investors and analysts have come to expect.

Macau's Gaming Inspection and Coordination Bureau said Friday that casinos collected $3.26 billion from customers during the month, a 7.3 percent increase from May 2011. The gaming revenue figure was the first time since July 2009 that the monthly percentage increase fell below double digits.

As a comparison, in May 2011, Macau gaming revenues grew 42 percent over the same month in 2010. In April, Macau gaming revenues increased 22 percent over April 2011.

May's total was also the second-largest single-month revenue total in Macau history, roughly 3 percent below the $3.36 billion reported in October.

Through May, gaming revenues in Macau are up 21 percent over the first five months of 2011. Gaming analysts are still predicting the market will grow above 2011's full-year figure of $33.5 billion, but they waiver on the percentage size of the increase.

So why is everyone disappointed?

"As with most things in life, investment related or otherwise, things tend to run in cycles," Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski told investors. "As it pertains to Macau, we believe it is inconceivable to think 40 percent to 50 percent growth could continue in perpetuity."

JP Morgan gaming analyst Joe Greff said May's results were driven by decelerating high-end gambling volume growth and low table game hold percentage - the amount of money won by gamblers versus the amount of money won by the casinos.

Last week, following a trip to Macau, Greff lowered his firm's expectations for the market-wide forecasts

"We are not assuming that May is an anomalous month, but, rather, the beginning of decelerating VIP growth, until the comparisons get less difficult in late third quarter of 2012," Greff said.

Janney Montgomery Scott gaming analyst Brian McGill said there had been signs that Macau's gaming market was slowing.

"When we go back now as far as March, the market has essentially disappointed," McGill said. "There are still not many who believe that Macau could possibly have a second half of 2012 that comes in lower than the first half."

Macau's market share continues to be led by casinos owned by Hong Kong-based SJM, which attracted 30 percent of the table game business.

Las Vegas Sands Corp., which in April added the first phase of the Sands Cotai Central complex to the company's casino base that includes the Venetian Macau and Sands Macau, had 16.5 percent of the region's table game business.

Las Vegas Sands said Friday it had officially withdrawn its appeal for a land concession from the Macau government for two additional development sites on the Cotai Strip. The denial for the sites first took place in December 2010.

Las Vegas Sands has three other developments on Cotai, including the Venetian and the $4.4 billion Cotai Central, which includes two hotel-casinos, a 600-room Conrad and a 1,200-room Holiday Inn. A second phase with a 4,000-room Sheraton, is expected to open next spring.

McGill said the company's withdrawal of its appeal was expected. It's unclear if the company will end up with additional properties on Cotai. Last month, Wynn Resorts Ltd. was given approval to build a resort development on Cotai, while MGM Resorts International is awaiting government approval for its planned Cotai Strip development.

"The opening of Cotai Central has not moved the needle like was expected," McGill said. "It now appears that the second phase will have a more significant impact on the Macau operations."

Wieczynski said investors were most likely disappointed since they have come to expect out sized growth from the Macau market. Casino operators in Macau said last month they had not seen any evidence of a decline in customer's willingness to gamble nor junket operators slowing any extension of credit.

"That said, though we are somewhat disappointed with the apparent moderation in Macau growth," he added.

Union Gaming Group principal Grant Govertsen, who is based in Macau, said May's results took into account that there was one fewer Sunday in 2012, while 2011 enjoyed the benefit of the May Day holiday beginning on a Sunday as opposed to a Tuesday.

Govertsen said the low table game hold percentage impacting at least two companies might be "cold comfort" to some investors.

"With respect to the optic of May's low growth rate, we think poor hold kept May from being a record," Govertsen said. "This also likely masked the positive impact of new supply, especially on the mass market segment."