Inside Asian Gaming

10 91% year-on-year over the same quarter. We attribute this strong performance in gaming growth to the new casino opening, with add- ed stimulus from expansion of the Individual Visit Scheme. This served as a “pull factor” to drive visitors into Macau to experience the new attraction. The Wynn effect (4Q 2006) Following Wynn Macau’s debut in September 2006, Macau gaming revenue jumped 44% year-on-year in 4Q06, com- pared to a mere 13% year-on-year growth in the previous months (January to August 2006). The speed of market growth was higher than our original expectations (15- 20% for full year 2006). Industry demand & supply Backed by a large feeder market with rising incomes, we think Macau has the po- tential to become the ‘Las Vegas of Asia’. We forecast gaming revenues will grow at a 25% compound annual growth rate over 2007- 10, at the high end of consensus. The Street seems to be consistently underestimating the depth of this potential market. Our view was reinforced recently as 1H07 revenues jumped 45% year-on-year. With a pipeline of high-quality destination resorts opening up, our top-end expectations could ultimately prove conservative. We are less concerned about industry supply than market share competition.While we forecast gaming supply to be 3x the cur- rent level by 2010, we view most of the new supply as high-quality product,which should help expand the market, rather than simply cannibalizing the existing properties. Gaming revenue growth We expect the Macau market to grow at a 25% compound annual growth rate over the next few years, from US$6.9bn in 2006 to US$16.6bn by 2010. With a pipeline of large- scale destination resorts, we believe the visi- tor and revenue mix will see a gradual shift from VIP to mass. Revenue mix from VIPs will gradually decline from 65% of the total in 2006 to 55% by 2010F, in our view. We see a strong correlation between VIP growth and the Chinese equity markets. Hence, this seg- ment is likely to be more cyclical and sensi- tive to policy risks. We believe growth in the mass market should accelerate to a 28% compound an- nual growth rate over 2007-10F, driven by four main factors: At present Macau generates around 98% of total revenues from gaming, with a mere 2% coming from non gaming. Over the medium term, we expect Macau’s business mix to shift to follow the Las Vegas growth path with its stock of large scale resorts that are expected to come online dur- ing the next few years. Source: DICJ; Deutsche Bank Macau gaming revenues forecast Source: Deutsche Bank; Macau government Monthly gaming revenue (yoy change)