These Companies Control 50% of the Casino Licenses in China
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The Chinese casino market is currently valued at $38 billion. With many American firms controlling operations in China, they may have already hit the jackpot. In the next several years, a massive bridge and rail network to the Cotai Strip in Macau will bring in a higher volume of gamblers and will keep the cash flowing to these companies.
MGM now has management that can cash in
MGM Resorts International (NYSE: MGM) is the Las Vegas Strip's largest lodging and gaming company, owning about 30% of the area's operations. It's difficult to go wrong with a company that has top-caliber management at the helm. CEO Jim Murren turned the company around from the brink of bankruptcy after the company's former CEO overpaid for large-scale purchases funded mainly by debt.
Now, the company is paying down its debt and looks to profit from a recovering economy. This can help the firm to increase its turnarounds on gamblers and up its room rates, which have increased by 5% year-to-date in the American hotel industry. Furthermore, a turnaround to the Chinese economy could represent even more growth as the company has expanded to the point where 20% of its revenue is generated from that nation.
Analysts anticipate a full recovery in the company's profits next year. This year is pegged to just miss a profit, however, with the firm expected to lose $0.05 per share. That's up from a $0.69 per share loss last year, though. The company is anticipated to be back in black next year with a $0.13 per share gain.
Las Vegas Sands starts construction on its latest Chinese addition
Las Vegas Sands (NYSE: LVS) is also heavily invested in China, and the company recently announced the start of construction on the Parisian Macau. The resort will join the company's four other properties on the strip, which include hotels and casinos. The focus on Macau, the only licensed gambling area in China, is a smart move by Las Vegas Sands as the area has been relatively immune to the country's economic downturn.
I expect the company to garner even more profits from China after the Hong Kong-Zhuhai-Macau Bridge finishes its construction; the bridge was given a three-year timeframe. The 30-mile bridge helps connect the Hong Kong airport with Macau, facilitating a 30-minute commute by car.
Analysts think the company's returns will accrue profits long before the bridge is finished, however. This year, the company is expected to increase its earnings per share by 35%. Next year, earnings are expected to grow another 17%.
Melco is 100% invested in China
Melco Crown Entertainment Limited (NASDAQ: MPEL) also has a stake in China, but unlike the others it is fully invested in China. Controlling a major portion of Macau sets Melco up nicely for the future. The company isn't likely to face much competition as Macau is the most densely-populated area in the world and there is little room to build new casinos.
The number of people visiting the gambling district could increase substantially, considering only about 2.5% of China's population visits the strip each year. For contrast, 10% of the population in the United States visits the Las Vegas Strip each year.
Analysts also expect big things from the company. Earnings per share for this year are expected to grow by 37%, followed by another 28% next year. Revenue is anticipated to grow 14.7% this year, and 9% next year. Because I am perhaps more confident in the Chinese economy's recovery, however, I am more optimistic and see revenues increasing further. That will allow earnings per share to grow as the company won't likely have expansion expenses.
China is just getting started
The Chinese casino gaming industry grew by 25% in each of the last five years, in spite a suffering economy at the later stage of that period. With only six companies licensed to operate casinos in China, these three look to take a large chunk of the $38 billion market that is still growing. Melco is set to profit the most due to it having the highest level of exposure in the nation.
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