Analysts not sold yet on Macao recovery; Soggy month for Louisiana

They came, they saw, they were unconvinced. “The re-affirmation that mass is improving was pronounced,” reported Deutsche Bank analyst Carlo Santarelli, adding that Sheldon_Adelson dye jobprojections were all over the place. “We get the sense that expectations remain low with respect to medium term VIP trends,” he added. There was a lot of talk about “player acquisition” (read: poaching from the competition) but concrete strategy was lacking. Santarelli concluded that “we think ultimately product quality leads the way, with customer reinvestment following.” Of the two new megaresorts, he was slightly more taken with Parisian, due in part to the critical mass of properties surrounding it. He also like its “inexpensive room product,” which would incentivize longer stays and Sands China‘s large, existing, mass-market base, from which it could “prune” customers for the new property. “Unfortunately, we leave with little confidence in either direction as we believe the market is at least stable, but believe more robust growth expectations are a function of the tail wagging the dog, given the moves in the stocks of late,” Santarelli added.

“We’d like to get more positive on the Macau names, but do not see a turn in fundamentals,” wrote Santarelli’s J.P. Morgan counterpart, Joseph Greff. “We heard from different operators that the mass segment is slightly growing, but this the-parisianmessaging was not consistent across the different operators. In fact, what we were told at these meetings is that the less bad/improved results in the 3QTD have been driven more by VIP volume and above average VIP table hold than by improvements in mass.” He expects VIP revenues to continue contracting, as junket operators focus on other markets (read: the Philippines) were anti-money-laundering rules are less stringent. Some operators reported easing of visa restrictions by the Chinese government but they are bracing for a full smoking ban by year’s end. Cotai‘s light-rail line continues to progress and “should alleviate travel congestion during peak times and help quell any local gripes about crowding and bus clogging.”

Greff candidly admitted he was more impressed with Parisian than he expected. Its room and restaurant offerings, he reported, were in line with the middle-class customers that Wynnare its target demographic. (Amenities include a staggering 170 retail stores.) “Eiffel Tower and French themes in common areas should help mass volumes/visitation growth, though it’s tough not to see how this doesn’t negatively impact nearby Studio City.” He also visited Wynn Palace and found it to be “Wynn Macau on steroids … Everything is bigger. Room size. Ceiling height. Restaurant size. Casino floor. Overall footprint. Great sight lines. Very light yellow colors.” Over the long haul, he expects to benefit from proximity to in-progress MGM Cotai and City of Dreams. He saw little cannibalization of Wynn Macau’s business, although he expects the latter to replace its plundered tables with electronic table games. Occupancy at Wynn Palace is running in the 90% range. In conclusion, he wrote, “we think the stock with the most upside/least downside here is MGM. Our least favorite name in the Macau space is [Melco Crown Entertainment] given its exposure to share shifts post-Parisian/[Wynn] openings.”

At least one analyst was unequivocally upbeat about Sands’ prospects. Seeing August’s 1% upward blip in gaming revenue as a “definitive shift,” Argus analyst John Staszak threw caution to the winds and put a “Buy” rating on the stock. Sands, he wrote, “is also focused on maintaining high occupancy at its Macau hotels. In addition, we expect investors to benefit from the company’s highly profitable Singapore operations, $2 billion share buyback program, and 5.1 percent dividend yield.”

Elsewhere, Galaxy Entertainment closed two Iao Kun Holding Co. VIP rooms at Galaxy Macau and StarWorld. It rationalized the move as “part of its comprehensive strategic review of its VIP gaming room operations in Macau.” As for Iao Kung, it is purchasing a casino in South Korea and is dabbling into Australian casinos.

Penn National Gaming had a bad August at Plainridge Park. The racino took in 14% less revenue than last year, despite having 7% higher slot coin-in. In win/slot/day, the property remains Penn’s flagship, averaging $338 per one-armed bandit.

* Louisiana casinos also had a rough go of it, worse than can be explained by having one fewer weekend day on which to make their nut. The lone bright spot in the state was Margaritaville in Shreveport, which made 4% more than last year, grossing $12 million. The Baton Rouge market was badly afflicted, reportedly inundated with high waters, with Gaming & Leisure Properties‘ riverboat down 30% (to $4 million). Even market leader L’Auberge Baton Rouge had a rough month, down 17% for an $11 million gross. Tropicana Entertainment‘s Belle of Baton Rouge dipped 6%, to slightly over $4 million.

Even the normally robust Lake Charles market was feeling the pain.  Pinnacle Entertainment‘s L’Auberge du Lac lost a modest 2%, to clock in at $28 million. Main rival Golden Nugget grossed $20 million, also 2% off the pace. Isle Grand Palais was less Harrahs_NOfortunate, down 8% for a $10 million haul. Boyd Gaming‘s Delta Downs fell 9%, to $13 million. New Orleans casinos continue to send conflicting signals about that city’s smoking ban. J.P. Morgan analyst Joseph Greff pinned the anemic numbers on the effects of flooding … ditto the borderline-disastrous figures from Baton Rouge. Low-grossing ($3 million) Fair Grounds racino, owned by Churchill Downs, should feel the impact harder but it was only 3% down. Harrah’s New Orleans, however, got clocked, falling 15% for a $19 million gross. As for the smoking-allowed casinos, Boomtown New Orleans was off 8% ($9 million gross) and Treasure Chest fared best, also grossing $9 million but only a percentage point down from last year. Boyd’s outlying casinos did much less well: Amelia Belle fell 9% for a $3.5 million gross and Evangeline Downs tumbled 16%, to $6 million.

Horseshoe Bossier City continues to lead that market ($14 million) but not by much. It was down 8%, while Eldorado Shreveport managed to lose 15% of business but close out the month with $10.5 million in the kitty. (As seen above, Margaritaville is nipping at Horseshoe’s heels.) Sam’s Town Shreveport was down 14%, to $6 million, while Boomtown Bossier ceded 9%, to $5 million. Caesars Entertainment had a terrible month at Louisiana Downs, falling 19.5% for a meager $3 million. Diamond Jack’s was almost as bad off, plummeting 18% for $4 million.

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