Inside Asian Gaming

15 18 C iting unofficial source, local Macau press reported June gaming revenue totaled MOP5.6bn (US$0.70bn). This represents 43% year-on-year growth for June against an easy year-ago comp (when revenue grew 8% y- o-y). Year-to-date growth remained broadly stable, increasing 47% y-o-y. These unofficial figures imply Q2 y-o-y growth rose slightly to 50% from 45% in Q1. Moderate impact from Guangdong travel restrictions We caution investors not to compare June with May. The 23% month-on-month drop between June and May was a result of the Golden Week holiday in the first week of May. Anecdotally, we hear the travel restric- tions have had more of an impact on the mass market than the VIP segment. The offi- cial mass vs. VIP breakdown will be available around July 18. Summer to kick off new high growth phase We believe growth could decelerate slightly over the next 2 months given a gap in the new casino opening pipeline, which will re- sume later in the summer The launch of Vene- tian Macau (Aug 28) and MGM Grand Macau (4Q07) should spur growth. We recommend buying on dips and position for strength in September-November.The large scale casino- Macau Gaming Update Gaming revenue held up well in June despite the recent mainland Chinese travel restrictions, reports Deutsche Bank’s Karen Tang resort openings should push investor senti- ment on Macau to new heights in Q3-Q4. May tourist arrivals strong May tourist arrivals jumped 24% year-on- year to 2.1m,broadly in line with year-to-date growth, at 21% y-o-y. The surge in visitation is attributed to cal- endar effects fromMay GoldenWeek and the Crown Macau opening, which would have at- tracted many new and repeat visitors to Ma- cau, particularly in the mass market. This was reflected in solid May gaming growth, which surged 67% y-o-y as overall demand contin- ues to exceed expectations each month In terms of the visitor mix, Mainland Chi- nese made up 56% of total visitors in May, having constituted 51% of the total in April. Comparatively,Hong Kong visitors represent- ed a lower proportion of May Arrivals—29% vs.34% in April.This shift in visitor mix should benefit mass market gaming growth. 54% of total arrivals were day trippers. Further, ap- proximately 50% of Mainland Chinese visi- tors traveled to Macau under the Individual Visitor Scheme (IVS). DB View: Strong monthly tourist flows continue, suggesting the busy casino pipe- line and calendar effects were sufficient to drive up visitation despite the tightening of Guangdong visa restrictions to Macau from mid-May. This further reinforces our key sup- ply-drives-demand thesis. We believe visita- tion growth could decelerate slightly over the next few months before picking up again in the summer once both Crown and Venetian open. Overall, we forecast a 20% compound annual growth rate in visitation over 2007- 2010 to reach 46m by 2010. Key sector risks include a slowdown in the Chinese economy, its monetary conditions, disruptions to travel and casino oversupply. April hotel occupancy stable Hotel occupancy remained stable, up a mar- ginal one percentage point y-o-y to 79% in April. Occupancy was higher or stable across all hotel segments, except the 3-star seg- ment which witnessed a 2 percentage point decline. Overall room inventory was up 15% y-o-y to 13,049 given the recent expansion in hotel supply (Wynn Macau, Galaxy Star- World). Average length of visitor stay re- mained stable y-o-y at 1.16 days. DB View: It appears strong April visita- tion (up 19% y-o-y) driven by calendar ef- fect from the Easter long weekend was not a sufficient catalyst to generate a marked im- provement in occupancy levels. This may be due to the growing room inventory (up 15% y-o-y), which mitigated the impact on oc- cupancy. Looking ahead, May Golden Week should support healthier occupancy levels, especially in the 3- and 4-star segments. We expect stronger occupancy in the summer as the next high growth phase kicks off fuelled by the Crown and Venetian openings. These new casino resorts should act as catalysts to drive visitors into Macau to experience new attractions. Over the medium term, we estimate oc- cupancy should peak out with an abundant pipeline of hotel supply. Furthermore, we ex- pect the rapid development of integrated ca- sino hotels and other attractions, especially in Cotai, to support our forecast of a tripling in hotel room supply to 30,000 by 2009. 1Q visitor expenditure shows moderate growth 1Q 2007 per capita visitor expenditure grew a moderate 6% y-o-y to MOP1,650 (US$206). 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