Big Phenomenons (Signals) for Macau

Posted: June 9, 2009 in Uncategorized

Macau.F&BExpert IRExpert IR’s Pinpoint View

June 9, 2009

Macau.Lion

Four big phenomenons have been thrown into Macau like huge comets, over the past one year.  Please don’t tell me that it’s the restriction of travels by the central government…. that’s a done deal and a permanent intention of the Chinese ‘big boss’.

The big phenomenons that I am talking about are,

(1)  Dropping EBITDA margins!    With an average of bewteen the 12.5 – 15% EBITDA margins it is Macau.glamoura clear signal that big casinos could not survive through the long winter… high operating costs (including junket commission & credit) would turn into a beast!  Big casinos need to achieve at least EBITDA margins of 25 – 30% (depending on their respective Cost structure) if not more to maintain the ‘margin of safety’.  Otherwise, there just isn’t shareholders’ value to be created.

(2)  Mass Market has been squeezed!   If Macau’s gaming industry continues to maintain a 65/35 % split of VIP and Mass gaming revenue, this is yet another strong signal that indicates the end of the road, for gaming investors.  The reverse case (i.e. 35% VIP, 65% mass) should be the light at the end of this long tunnel.Macau.Betting

(3)  Where’s the WOW factor?!   When Sands Macau casino first opened in the territory, it created a whole new Wow factor that attracted millions of visitor per year into the ‘conclave’ to pay ther respect.  Now?  Almost every new opening of casino property provides the same product mix… hotel rooms, F&B restaurants, gaming tables, slots, fountains… in a simple phrase, Macau has lost its wow factor. 

(4)  ‘Junk Tourism’ !    Yes, Macau will continue to draw visitors.  Visitors who are coming over with little budget to spend.  Macau’s travel industry calls this phenominon the ‘Junk Tourism’.  I would call it the Junk bond – low value & low yield commercial papers.  Casino averaged gross revenue per pax (mass market) has gone down from HK500 to HK300 and dropping.  Without creating new wow factors, the territory’s ability to attract critical mass middle-class chinese market will remain weak in the long run.

Macau has so far channeled huge external direct investment into a state of overbuilding… resulted in oversupply state of affair.   In business terms, returns on capital is very low.  If the above mentioned big phenomenons  are not corrected in time, I would think that the odd is already stretched too far.  In gaming terms, ‘theoretically’ the win percentage is not good at all for the banker/house.

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