A Primer On Casino Stocks And Macau

Bob is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Those interested in casino stocks cannot ignore the activities in Macau. Macau is located about 40 miles from Hong Kong and the government opened up its gaming market in 2002. It is now the largest in the world with gaming revenues hitting a record $38 billion in 2012 compared to roughly $14 billion generated in the U.S. Nevada market. The current hotspot for casino development in Macau is called the Cotai Strip. It is a major land reclamation project that filled in the area joining the two islands of Coloane and Taipa and is part of the government's efforts to expand the region's territory.

There are four major companies, publicly traded in the U.S., that have a significant interest in Macau.

Las Vegas Sands (NYSE: LVS)

Regardless of the name, Las Vegas Sands derives most of its business from Asia. In the last quarter, the company posted revenues of $2.7 billion with 61% from projects in Macau. It also had 23% of its revenues from a new casino in Singapore and 16% from U.S. operations.

The company operates four casinos in Macau with the largest being the Venetian Macao Resort Hotel, which anchors the Cotai Strip. The Venetian Macao has approximately 534,000 square feet of gaming space and generated $773 million of revenue in the latest quarter.

The Sands is continuing to grow in Macau, owning over 140 acres in the Cotai area. In 2012, the company opened further expansion of its Sands Cotai Central resort project. This development is located across the street from The Venetian Macao and another expansion phase is expected to open in early 2013. At that time, the resort will feature 300,000 square feet of new gaming space and another 1.2 million square feet of retail and entertainment facilities.

Wynn Resorts (NASDAQ: WYNN)

Wynn Resorts, headed by famed casino operator Steve Wynn, also has a significant interest in Macau. Wynn reported 70% of its $1.3 billion in last quarter's revenue coming from the area.

Wynn has one casino in Macau. Originally called Wynn Macau at its premier in 2006, it expanded to 265,000 square feet of gaming space with the opening of Encore at Wynn Macau in 2010.

The company is looking to expand in China. In 2011, Wynn accepted the terms of a draft land concession contract from the government for approximately 51 acres of land in the Cotai area. In May 2012, the concession was granted and now Wynn is working to construct a full-scale $4.0 billion integrated resort there.

Looking for continued growth outside Las Vegas, Wynn recently hired an executive from a competing gaming company to further expand its international development.

MGM Resorts International (NYSE: MGM)

MGM Resorts currently does not have the emphasis on Asia as some of its peers. In their latest quarter, of the total $2.3 billion in revenues only 29% came from Macau.

The company has one establishment in China, the MGM Macau resort and casino. Even though it has only the solo holding with 317,000 square feet of gaming space, MGM does have an influential 49% partner with connections to the family of noted Chinese billionaire Mr. Stanley Ho.

MGM is also looking to grow. In October 2012, MGM accepted the terms of a land concession contract from the government to develop a $2.5 billion resort and casino featuring approximately 1,600 hotel rooms, 500 gaming tables, and 2,500 slots built on a 17.8 acre site in Cotai. The company recently won final official approval for the new development, helping it keep up with rivals in the gambling hotspot.

Melco Crown Entertainment (NASDAQ: MPEL)

Melco Crown might not be well known but it does have a meaningful operation in Macau. The company has two casinos, the City of Dreams with 420,000 square feet of casino area and the Altira Macau with 173,000 square feet of gaming space.

In the last quarter, the company posted $1 billion in revenues with $747 million from City of Dreams and $216 million from Altira.

Melco is also planning an expansion with its Studio City project. Planned as a large-scale integrated resort complex located in Cotai, site preparation has been completed. The company expects the construction period to be finished in 2015 and cost roughly $1.9 billion.

The growth potential of the Macau gaming market is well known and most of the time these stocks have discounted the benefits with an optimistic valuation. However, there is the occasional loss of favor in the segment that can provide an opportunity to pick up shares at a reasonable price.

Every now and then one of the Macau players will post a soft quarter causing its shares to fall. Profits for casinos are highly dependent on what is called the "VIP win percentage" or the amount kept by the casino from VIP play. While fairly consistent over time, this win percentage can drop in a particular quarter causing earnings to miss estimates.

These stocks are also prone to general industry or market declines. Changes in China's economy or governmental policies can often have a negative effect on casino stock sentiment. An overall market "risk-off" attitude can also hurt investor short-term attitudes toward the Macau casino stocks.

By keeping an eye on fast growing Macau and buying shrewdly, investors can get a better advantage with these casino stocks than any provided by a casino gaming table.


grahamsway has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus

Compare Brokers

Fool Disclosure