FRIDAY, OCTOBER 16, 2009
Sterne Agee says tighter visas for Chinese visitors to Macau won't hamper stocks such as Las Vegas Sands and Wynn Resorts.
THE MACAU DAILY quotes an official from China's Guangdong province saying restrictions for travelers to Macau from mainland China will be tightened to once every two months from once per month. The once-per-month policy had been in effect since August 2009.
Our Macau contacts suggest this new policy is a reflection of China's desire to induce stable and sustainable growth for Macau, and to slightly moderate extremely high market-growth results, as was seen in August and September 2009. It was stressed that a loosening could reoccur if Macau market conditions warrant it or potentially when the new Macau chief [executive] takes the helm in December 2009.
We believe investors may be concerned how the new visa tightening impacts Las Vegas Sands' (ticker: LVS) upcoming potential Hong Kong initial public offering. To this, we again note that the Wynn Resorts (WYNN) Hong Kong IPO, priced at over 17 times 2010 enterprise value-to-earnings before interest, taxes, depreciation and amortization, remains above its offering price after last night's trading.
In addition, the opening of Las Vegas Sands' potential crown jewel, Singapore, is slated for first-quarter 2010, and we still feel as though our Macau estimates for Las Vegas Sands remain conservative even in the wake of the visa policy change.
Melco Crown Entertainment (MPEL) is a pure play in Macau for now, which investors may focus in on this morning. However, Melco Crown sells for under 10 times 2010 enterprise value-to-Ebitda, which is a large multiple disconnect to the Macau group. In addition, Melco Crown generates a vast majority of its gaming revenue from VIP-customer play, which we believe will be less impacted by the policy change than mass play. Our estimates for Wynn Macau and Melco Crown remain the same.
Recall that mainland Chinese were restricted to traveling to Macau once every three months just a few months ago. Thus, the policy is still better than where it was, albeit less so than where it was for August 2009. That month saw an all-time record gaming-revenue period in Macau and for September 2009, which nearly matched the all-time record. We believe that while visa loosening has been a driver of recent growth, other significant drivers remain the same, such as the loosening of credit to players via junkets and the loosening of credit to junkets via casinos (in the form of dead chips). Further, economic trends in China continue to be strong.
We are not changing any estimates for Las Vegas Sands (Buy, $17.94), Melco Crown Entertainment (Buy, $6.51) or Wynn Resorts (Neutral, $67.13). We feel we already modeled our Macau market-revenue assumptions modestly, and we utilize our Macau revenue model as one derivative of gross gaming-revenue assumptions for individual companies. We also believe VIP-customer play, which accounts for close to 65% of Macau gaming revenue will be less impacted as many VIP players utilize the commercial visa scheme, which remains unaffected, according to one of our Macau junket contacts.
However, it is difficult to argue that the whipsawing of Macau visa policy does not expose the political risk associated with mainland China and, thus, may have an impact on stock multiples in the group this morning. Still, this risk is coupled with our belief that there is no other gaming market with as much near-term or long-term opportunity than Macau. Should we see an overreaction to the negative side on Macau names relative to yesterday's Hong Kong results for Macau names, we would view it as a buying opportunity.
-- David Bain
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