Three Hospitality Stocks Eyeing China
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The Las Vegas-based casino operator MGM Resorts (NYSE: MGM) recently saw an increase of ~10% in its stock price after the company announced the news of the refinancing it’s~$5 billion debt. This refinancing package includes a public offering of ~$1 billion in senior unsecured notes and another ~$4 billion of secured credit facility. The company plans to use the proceeds thus received to repay ~$3 billion out of its existing debt, which is going to be due in the next few years. The transaction would reduce MGM's burden of interest by ~200 million, as it has refinanced its high-priced debt at a much lower cost. This would further improve the company's cash position. Following this news, Standard & Poor upgraded MGM's credit rating to B+, which came as positive news for the investors. This news also removed my doubts and reinstated my confidence in the performance of this company in the long run.
Let us have a look at how MGM's competitors are operating.
Las Vegas Sands (NYSE: LVS) - It is one of the leading players in this field and holds a unique position in the hospitality, leisure, and gaming industry. In its 3Q12 results, the company posted net revenue of ~$2.71 billion, up by ~13% y/y. Along with its larger casino profits, the gaming revenue in Macau, which reached ~19% (up from ~14% y/y) in this quarter, helped the company to book higher profits. The company even gave its investors a reason to celebrate by declaring a $2.75 special cash dividend along with an annual dividend of $1.40. Together with its successful history, the future prospects of the company are also very bright. The company's recently opened resort 'Sands Cotai Central' in Macau will help it to further enhance its presence in this region and increase earnings. Apart from Macau, Las Vegas Sands is looking out for potential opportunities for new resorts in countries such as Japan, South Korea, Thailand, India, Vietnam, and Spain.
Wynn Resorts (NASDAQ: WYNN) – Another established player in this industry is Wynn Resorts, which has a leading position in Macau and Las Vegas. However, Macau dominates the revenue for the company with three times more contribution than that of Las Vegas. To further strengthen its footprint in Macau, the company is opening another resort in Cotai in 2016. The new resort will have 40% more rooms, around 500 gaming tables, and is well located near a Ferry Port and the Macau International Airport. When completed, this investment could double the company's profits from this region. Wynn Resorts has also passed on the growing benefits to its shareholders. The company announced a special dividend of $8 per share, four times more than that of the previous year.
Both the companies generate a majority of their revenues from Macau and are eying this region for their future growth opportunities. Now, let us see how MGM Resorts is planning to gain ground in this region.
MGM Resorts recently announced that it has received a lease from the Macau government to develop a luxury resort in Cotai Macau. The resort is expected to open between 2Q 2015-2017. The new resort would be a game changer for the company, as Cotai is the new center of growth in Macau. Also, this would give the company an opportunity to compete fairly against the other big players in Cotai. The improving infrastructure facilities in Macau, such as the new light rail system, the Hong Kong – Zhuhuai-Macau bridge, and high-speed rail in China, would enhance the growth prospects in Cotai.
MGM Resorts depends heavily on Las Vegas for its business compared to its two peers. The consumer spending on entertainment and gaming is expected to increase with the beginning of the economic recovery in the US. This is a robust opportunity in front of the company to enhance its market share in Las Vegas. The company is looking to grab gaming licenses in Maryland, Springfield, and Toronto. MGM is planning for a ~$800 million casino in Springfield, spread out over 15 acres. Even though the competition is getting tougher here, MGM’s strong brand image would help it earn a positive growth in revenue. Along with the physical gaming in casinos, MGM Resorts is expanding into online gaming to boost up its portfolio. The company has entered into a partnership with Playstudios in the US for developing an online gaming platform. Via this platform, MGM will be able to entertain its customers in a highly innovative way, along with attracting new customers to its offerings.
On the whole, all of the three US casino stocks mentioned above are in strong positions to gain from the growing prospects of Macau. Macau, being the only legal gambling center in mainland China, has seen tremendous growth in recent years and is further expected to grow in volume. According to a study conducted by PWC, the casino revenues in Macau are expected to double in the next five years, and will generate ~34% of total global casino revenues by 2015. Looking at their exposure in Macau and recent developments in Cotai, I feel a higher upside potential in their stock prices.
ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. 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!