Supply and demand

Goldman Sachs analyses the potential impact of the LVS construction delay

LVS’s suspension of its Cotai construction work is not the only supply side change projected for Macau’s gaming market in the next four years, says Goldman Sachs.

In addition to an estimated 2,100 gaming tables and 7,500 slot machines being taken out of the mix in the short term by the LVS decision, says the investment house, a number of other projects are going to be either delayed or mothballed.

These projects are:

• Galaxy’s Mega Resort delayed from the third quarter of 2009 to 2010.
• Push back of SJM Holding’s L’Hermitage, Arc de Triomphe, Oceanus and Cotai II projects by about one year.

“Both LVS and Galaxy announced their plans to shelve their casino development plans, which would otherwise add about 1,300 tables or 30% new supply in 2009E into the market,” says Goldman Sachs.

“As with Galaxy,” adds the report, “we believe the key challenges for SJM are its ability to secure the budgeted HK$17 billion capital to complete these projects.”

• Wynn and MGM’s Cotai projects have also been removed from Goldman Sachs’ supply forecasts.

“Our US analyst believes that the companies are adopting a “wait-and-see” approach. We see several opportunities for them to purchase land in Cotai, with several other projects on hold due to funding issues (e.g., Galaxy’s site of 10 million sqft; eSun’s site for Macao StudioCity etc),” says the investment house.

• Closure of certain tables/slots in older casinos.

“Of the 31 casinos in Macau, SJM owns 19,” says the report.

“As the market continues to undergo consolidation (especially as demand slows), we expect some of the older and small-scale casinos to be closed down. After these revisions, we estimate the number of gaming tables in Macau to increase by 8% CAGR from 4,312 as of 3Q08 to 5,787 as of end-2012E (vs. our previous estimate of 10,153 tables).

“We believe slower gaming supply would put less pressure on profitability in the long term. After the fall in 2009E, we expect net win per table in Macau to stablise at that level from 2010E through 2012E,” adds Goldman Sachs.