HEDGEYE EDGE

On the heels of our Macau deep dive presentation and following a nice step in weekly growth, we're modestly raising our GGR forecasts for the month and year.  Could this be the start of something big?  Not exactly sure but the pieces of the puzzle seem to be fitting together - a big week, reports of visa easing and higher traffic, all coinciding with the end of the People's Congress meetings.  Lawrence Ho laid out this timeline on his last earnings call, and we were surprised given his cautious tone last year, but he might be proved correct.  If the visa process has indeed eased, and a return to electronic visa processing is close, our GGR forecast hike won't be our last.  We discussed potential reopening scenarios and impacts in our presentation last week, “OPEN THE SPIGOT!". We also discussed our long term Macau views, including hurdles and risks, and touted both WYNN and LVS as recovery winners.

For the replay and slide deck materials associated with our recent Macau deep dive: CLICK HERE

WEEKLY data | GRADUAL IMPROVEMENT CONTINUES IN MARCH    

GGR commentary

Based on commentary from our sources on the ground, March stepped up last week from “baby steps” towards a stronger and improving trend of GGR performance.  Week to week growth accelerated over 11%, despite some potentially low VIP hold, following the overhang from National People’s Congress. Relative to prior month, Macau’s MTD pace is now 7% higher and likely growing even though February benefited from the Chinese New Year celebration.  As is the case most weeks, final visitation #'s are tough to confirm, but higher traffic was apparently visible across the major casino IRs, potentially reflecting some greater confidence in travel to Macau or perhaps some easing of the visa process.          

For the past 7 days through the 21^st of March, daily GGR pace was HK$298MM, falling ~57% vs ’19 levels.  This past week of GGR also accelerated by over 44% vs the final week of February (post CNY slow down).  In the MTD, daily GGR pace is tracking at HK$270MM, which is down ~65% vs ’19 levels.  The height of Chinese New Year (and days following CNY) is the high watermark for the recovery and this past week was still 34% below those levels, but this past week also represents the strongest level of “non-holiday” impacted GGR pace since reopening – certainly, a step in the right direction.

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Market commentary

Individual property level commentary was not readily available from our contacts but we remain confident in our “top shelf” investing thesis for Macau, with LVS and WYNN likely to gain more than their fair share during this mass led recovery.  Commentary over the last few weeks seems to suggest that premium mass strength is the go-to segment of the recovery so far, and newer + top shelf hardware are the winners thus far.  Since opening. the Londoner project seems to be the talk of the town and also the main attraction on Cotai.  LVS should really be able to leverage its core competency of themed properties + benefits from their new product at Four Seasons, which has been off to a good start.  With the market just building steam, WYNN’s best-in-class room and gaming product will become more available to the masses, and thus should yield solid share gains for the company – we have seen this in prior recoveries in both Las Vegas and Macau.

outlook | INFLECTION IS COMING

Each week we’re hearing more and more nuggets that suggest the Macau government is looking at creative ways to incent travel and promote the SAR as a safe place to travel.  A few weeks ago, news surfaced that casino IRs were no longer requiring proof of a negative Covid test to enter a property, which in our eyes, marked a small but important step towards the normalization of Macau. Then last week, we heard that the Macau Tourism Board (MGTO) was running a campaign in Hangzhou to entice tourism to the tourism (read: gambling) enclave.  Over the weekend, the Macau government took another step towards normalization and reduced the HK to Macau quarantine time from 21 days down to 14 days.  Any quarantine measure is an impediment to visitation, but we’re reading between the lines and believe it could be setting Macau and HK up for some form of travel bubble between the SARs.  Hong Kong’s current Covid-19 case trajectory is decelerating and back towards the lows last seen in October. 

The big catalyst we’re all waiting for, and one that Macau might be inching towards is the official reinstatement of online visa applications (e-visas) for Mainland China visitors.  There has been some talk of the e-visas being reinstated, and during the National People’s Congress (NPC), all 12 of Macau’s NPC deputies pushed for the resumption of e-visas applications and tour groups to Macau while in attendance.  Perhaps this request (catalysts for the stocks) will be granted sooner than later.

Going forward, our focus is unchanged.  We’ll be monitoring the visa issuance (process time improvements), travel restrictions, weekly visitation commentary, and mass gaming floor head counts, and of course, Covid outbreaks + vaccination progression in the Mainland and within Macau.  Following our update of this week’s estimate and review of market color our forward estimates are modestly higher.  We believe March GGR could decline 63% to 65% vs 2019 and have raised our 2021 and 2022 projections as well.

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Hedgeye edge

RevPAR growth accelerated in the US last week with headline growth breaching triple digits YoY for the third week in a row.  It’s important to note that the comp was -82% YoY, but even adjusting for that and comparing vs 2019, hotel RevPAR accelerated meaningfully vs the comparable period.  This past week did have the benefit of the Easter long weekend and school break, which aided the growth rate (Easter was later in '19 and '20).  Looking ahead, one should expect a bit of a reversal in the coming two weeks but growth should still be strong.  With that in mind, this past week showed one of the fastest week to week accelerations in headline RevPAR data since the start of the year.  RevPAR accelerated by more than 400bps week/week, led by strong performance at resorts, leisure markets, and lower end (economy) hotels. 

A closer look at the internals emphasizes the point that the industry is being led by the pent up leisure traveler – on a 4wk moving avg. basis weekend RevPAR (leisure) is materially outperforming the weekdays (corporate) with RevPAR down 20% and 42%, respectively, versus the same period 2019.  Resort markets experienced off the charts (by today's standard) growth and RevPAR was actually up 3% vs '19.  Markets like Miami, Tampa, and VA Beach remain industry leaders, all showing RevPAR growth vs '19.   

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WEEKLY COLOR/COMMENTS

• Note re: upcoming weekly analysis: To cleanse for the impact of the Covid comps (RevPAR comps soon to be down 70-80%), most of our analysis on RevPAR will be performed vs '19 levels (pre Covid).  We find that this analysis will allow for a better gauge of recovery improvement.
  

• Headline Data:  Per the latest weekly STR release, total US RevPAR grew 287.6% vs the prior year for the week ended 4/3, an acceleration vs the prior week.  Adjusted for Covid comps and compared to '19, RevPAR was -27.3% YoY, also an acceleration vs the prior week.  

• Customer Segments (vs '19):  Group RevPAR last week dropped 83.9% (vs '19) while Transient RevPAR posted a 8.5% decline, which is significantly above its recent pace (also aided by holiday timing).  For the trailing 4-wk period ended 4/3 Group and Transient RevPAR fell 82.2% and 26.4% (vs'19), respectively.

• Geographic Segments:  From a geographic perspective operating trends showed a lot of variability across the sector.  Urban hotels remain the most challenged and RevPAR dropped 57.6% (vs '19) this past week.  Resort hotels accelerated significantly and posted RevPAR growth of 3.3% (vs '19).  We expect Resorts will lead the industry for at least the next 3-6 months.   

• Top 25 Markets:  For the past week, Top 25 market hotel RevPAR fell ~46% (vs '19), a decent acceleration from prior week, but growth continues to be weighed down by core urban centers like NYC, SF, and Boston. 
  

• Weekend vs Weekday:  Easter week clearly impacted the day of week performance and boosted the weekdays given the holiday week timing, but the delta between leisure and business demand is still evident.  With that in mind, weekend (leisure) RevPAR dropped 20% (vs '19) while the weekday period declined 34%.  In the trailing 4wk period, weekend RevPAR is -20% (vs '19) vs weekday RevPAR at -42%. Note, we exclude Sunday from this analysis.

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• In the US, Top 25 Market Performance for the prior week went as follows:

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