by Jason Jenkins, Investment U Research
Friday, January 25, 2013
All of the major casinos are attempting to increase their foothold in Macau.
And it’s with good reason. This Chinese territory is now the most important revenue driver for casino operators.
For those in the know, this isn’t new news. Back in 2006, Macau became the largest gambling center on the globe. In fact, it’s become more important to casinos than even the revered Las Vegas strip. Last year Macau – by itself – is expected to have produced more gaming revenues than the whole U.S. commercial casino industry totaled in 2011.
And the future appears bright. The Macau casino market is the only destination in China -the most populous country in the world – where casino gambling is legal. Most market analysts believe Macau will likely double in size to $50 billion over the next three years.
The numbers make sense, and it seems some casinos are specifically poised to take advantage of Macau going forward…
Ending 2012 With a Bang
Casinos with exposure to Macau had a nice December rally to end 2012, and expect to carry on to outperform this year. A few weeks ago, analysts upgraded their gaming revenue estimates to $42.7 billion. That’s a 12% increase over 2011.
Let’s take a look at two driving forces:
- First, the revenue numbers have gotten a kick start by the addition of new train lines into Macau. It’s now easier for everyday Chinese citizens to get their gambling fix.
- Next, you need to look at the returning VIP demand forecast, which shows an 8% increase over the previous 2% estimate. Also, there are solid mass-market numbers. They’re up 22%, where former projections had them up 18%.
Keep in mind, these increases in revenue happened even with a supposed Chinese economic slowdown.
Just like Las Vegas has the Vegas Strip, Macau has its Cotai Strip. Right now, casinos from all over the world are dishing out billions on resorts that include shopping centers, shows and hotel capacity. Why? To bring in this new draw – a Chinese middle class willing to spend money.
However, space is limited on the Cotai Strip. The casino operators who have the ability to increase capacity, to get more VIP clients and their higher yields… They will be the big winners going forward.
Look for Las Vegas Sands (NYSE: LVS) to open up 2,000 additional rooms and 200 tables by the second quarter of 2013. J.P. Morgan raised its price target on Las Vegas Sands by $7 to $58. The casino company should increase its total market share to more than 21%. That will keep it at the top of the pack.
Hong Kong-based Melco Crown Entertainment Ltd. (Nasdaq: MPEL) develops and manages casino gaming and entertainment resort facilities with an exclusive focus in Macau. It owns and operates City of Dreams on the Cotai Strip, and the Altira Macau casino hotel located in Taipa. Mocha Clubs also falls under its umbrella – it’s made up of Melco’s non-casino based operations of electronic gaming in the territory.
Melco Crown is reaping the benefits of the increased revenue from the premium mass-market segment at City of Dreams. The casino is also expected to benefit from the additional capacity at Sands Cotai Central, because they’re geographically so close together. Melco Crown’s price target recently went to $24 from $20.
And down the road take note of MGM Resorts International (NYSE: MGM).
Its Chinese unit won approval last week from the Macau government to build a second casino on the Cotai Strip.
When completed in three years, the casino will include 1,600 hotel rooms, 500 gambling tables and 2,500 slot machines. The gambling will be accompanied by a restaurant, retailers and entertainment offerings. Already this year, MGM’s price target has risen from $12 to $14.50.
JasonMacau Still Driving Growth for These Casinos,