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Macau Casino Growth Still Up, Albeit a Bit Lower

Posted on October 6th, 2010

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Despite an apparent decline, Macau is still enjoying positive growth—something that cannot really be said for the rest of the casino industry in the US. Because of this, shares of American companies that have business in the Chinese enclave have enjoyed an increase in value. The market saw a rise in shares of casino owners which include Las Vegas Sands Corp. and Wynn Resorts Ltd., two companies that have stakes in Macau, after officials in the area reported a jump of 40 percent in gambling revenue during September. Other companies, including Sands China Ltd, SJM Holdings Ltd. and four other operators of casinos in the current titleholder of the world’s largest gambling hub also reported increases in their revenues of up to 15.3 billion patacas (equal to $1.9 billion) for September 2010 compared to figures of Septmeber 2009. These figures were reported by the Gaming Inspection and Coordination Bureau of Macau.

In trading in Nasdaq, a 3.9 percent increase was seen in Wynn shares, to $90.51 at 4 p.m. Las Vegas Sands went up by 3.6 percent to $36.44. Melco Crown Entertainment Ltd. rose to $5.39, an increase of 5.9 percent. Lastly, MGM Resorts rose to $11.36 in New York Stock Exchange composite trading, an increase of 1 percent. These four companies listed in the US own and operate casinos in Macau, so far the only area in China where they are allowed to operate. The 40 percent growth that Macau posted is noticeably lower than the 67 percent growth posted during the first half of the year, as that time, gambling was boosted by economic recovery in China. The economic expansion of the country rose by 10.3 percent in 2010’s second quarter, which is lower from the 11.9 percent increase in the first three months of the year. The lower (but still double-digit) growth in the second quarter may be attributed to measures introduced by the government to slow down the country’s property market, which was feared to experience overheating in the latter months of the year without government intervention.

An analyst at Sanford C. Bernstein & Co. based in New York, Janet Brashear, explained in a note to clients, “The growth experienced by Macau is still at attractive levels, even as the rate decelerates. The real news is the share battle under way. Reports suggest that MGM and Melco have been particularly aggressive in attempting to shift junket share to their casinos.” There is indication that some of the companies are seeking to expand their businesses in other areas in China. Last week, MGM submitted a preliminary application in Hong Kong for an initial public offering. MGM China Holdings Ltd., the Macau joint venture between the largest owner of casinos in Las Vegas and Pansy Ho, daughter of Asian casino magnate Stanley Ho, has declared that it is planning to sell shares in Asia this year.

Revenue of casinos in Macau for the month of September was expected by analysts to go a bit down, although still in the green. Jonathan Galaviz, an independent industry consultant points out, “Asia’s macro-economic performance continues to be strong and Macau will benefit as long as this dynamic remains. There continues to be tremendous asset bubbles in the region. Hence, we are also cautious on Macau due to its sensitivity to what we see as an eventual Asia downturn sometime in 2011.” Eve Las Vegas Sands Corp., which is the parent company of Sands China, the operator and owner of the company’s Macau facilities, forecasted its growth in June to be more than 30 percent for the year’s second half, which is 37 percent lower than the 67 percent expansion the company experienced in the first six months of the year.

But despite the lower figures for the past months, the picture painted by the Macau casino industry is still a vibrant one, far from the scenarios in American casino hubs, particularly in Las Vegas and Atlantic City. Casino companies based in Las Vegas are currently depending on good news from their Singapore and Macau operations to buoy them through the hard times. The Chinese territory has surpassed the Las Vegas Strip as the world’s largest gambling hub four years ago. This was made possible as the gambling monopoly of Stanley Ho in Macau was ended, allowing foreign operators to establish their facilities in the area.