time to buy

From GSJBW this morning.

PBL Macau January Gaming Revenues +71%

06/03/07 08:10

PBL; GAMING; Macau January Gaming Revenues +71%

Macau growth off to a solid start in 2007

This morning, the Macau Statistics and Census Service released January Macau gaming revenues showing 71% growth. Gaming revenue growth was well ahead of January visitor arrivals growth of +23%, providing further evidence that spend per visitor continues to increase, especially in the more VIP-dominant first and fourth quarters. Although timing of Chinese New Year made January a relatively easy comp, this is a solid start to the year.

We are forecasting full-year 2007 Macau gaming revenues to grow 15% (this assumption is under-review as it looks light) with the expectation that quality new supply will continue to drive Macau gaming revenue growth in 2007 as it did in 2006. There are four major Macau casino openings in 2007. Stanley Ho already opened Grand Lisboa, Melco/PBL will open Crown Macau in April, Las Vegas Sands will open Venetian Macau July/August, and MGM will open MGM Grand Macau in ~September. In addition Wynn will open a major expansion (78% increase in mass tables) mid year.

In 2006, gaming revenues grew 23% and new tables increased 67% on average. We estimate visitor arrivals grow 15% to 25mln and spend per visitor to be relatively flat in 2007. Given strength in January visitor numbers (despite no new casino openings) we expect we will also have to raise this assumption.

The next official Macau data points will be February visitor arrivals around March 20-22 and February gaming revenues April 4-6. February growth could be negatively impacted, as it had a few more of the slow days from the start of Chinese New Year, that it did not have last year. However, according to the Macau Government Tourist Office, visitor arrivals were up 20% yoy for the first three days of Chinese New Year (typically the slower days of the holiday), which bodes well for the full-month results.

GSJBW Comment –These statistics highlight that visitor numbers and gaming revenues continue to increase as new gaming supply enters the Macau market. We continue to expect PBL’s Crown Macau to open as forecast in April which we view positively. As investors globally have moved more defensive, PBL has come under increasing downward pressure. Further, with the 20% foreign ownership having been reached, funding the marginal incremental buyer is proving difficult. However, with the stock now trading at $18.47, some ~18% below our PBL valuation of $22.40, there is increasingly long term value on offer.

Valuation: $22.40

Recommendation: S/T Outperform; L/T Buy
Share price: $18.47