Market Vectors Gaming ETF: Macau Isn’t A Gamble (BJK, LVS, WYNN, MGM, MPEL)
Jim Trippon: With recent earnings reports from casino stocks Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN), many investors are focused as much or more on Macau than the city of Las Vegas. Macau, a special administrative region in China, is a peninsula and islands roughly 40 miles southwest of Hong Kong, which is known for its gambling. Macau, once a Portuguese colony, is the only region in Greater China where casino gambling is legal, and has seen dramatic growth in the last decade as it opened up casino operations to non-Chinese companies. How big is gaming in Macau? As of the end of 2011, Macau’s gaming revenues were roughly five times that of Vegas, at $32.5 billion. Related ETF : Market Vectors Gaming ETF (NYSEArca:BJK)
Sands And Wynn, Two Big Players
Wynn Resorts reported fourth quarter earnings recently of $1.55 a share. This was a substantial increase over the 91 cents EPS in the year ago quarter. Net revenue was up to $1.344 billion, an 8.6% increase. For the full year, Wynn earned $701 million compared to $261 million, on revenue that increased nearly 26%. Of Wynn’s total revenue in the fourth quarter, $995.5 million of the $1.344 billion was from Macau. This was a 9.1% year-over-year increase at its Macau operations.
Las Vegas Sands, which also reported fourth quarter earnings recently, earned 57 cents a share compared to 42 cents a share in the same quarter last year. Revenue for the quarter was $2.54 billion, a 26% increase. For the full year 2011, Sands reported net income of $1.64 billion compared to $775 million in 2010, on 2011 revenue of $9.41 billion, a 37% increase. While revenue for the quarter from Sands Las Vegas operations was $340 million, revenue from Sands China was $1.33 billion.
The gambling and tourism scene is different in Macau from that of Vegas. Much of Macau’s casinos’ appeal is to high-rollers, where Vegas attracts a lot of middle income, more casual gamblers. Macau has a distinctly deeply international flavor, with keen competition among casinos operating already, and fiercer competition heating up. Although Sands already operates three properties in Macau and one in Singapore, Sheldon Adelson, Sands’ CEO, is building Sands Cotai Central, a $4 billion seven-site integrated resort on the 1.8 mile Cotai Strip. Adelson maintains that when the Cotai Strip opens, it will be the heart of the action rather than the casinos on the peninsula.
Map Of Macau
The chief potential drawback of Macau gaming is real estate. The peninsula, Cotai strip and the islands give it an area of roughly 18.5 square miles total. With so many casinos crammed into a tight area, the obvious importance of real estate screams that land is the limiter for expansion. It’s not a riddle, but how many casinos, or how many more, can fit on Macau? We’ll probably find out. The cultural and geographical differences from Vegas-style gambling makes tourism far less a factor in the current overall revenues, as fully 95% of revenues currently come from gaming, with only 5% from tourism. By comparison, Vegas generates more than 50% of its total revenue for the casinos from the hotel and resort aspect of its business, with gaming revenues slightly less, comprising the rest.
This year got off to a flying start with Macau gaming, as revenues rose nearly 35% for the month of January, to $3.13 billion. Revenue growth for all of 2011 was 42%, with this year’s expected growth to be slower, in the 10% to 20% range. The January boost was in part due to the early Chinese Lunar New Year, which attracted tourists and players in record numbers to Macau. The slower Chinese economy was the factor for expected dampened growth this year, though Macau’s international appeal should help growth.
Wynn Resorts which also owns Wynn Macau (1128.HK), is also planning to expand to the Cotai Strip, and there are other operators on Macau investors might want to look at, such as MGM Resorts International (NYSE:MGM) and Melco Crown Entertainment Ltd. (NASDAQ:MPEL).The strong revenue momentum on Macau and what is likely to increase from the Cotai Strip should drive casino revenue and earnings forward for quite some time. Also, business has regained some strength in Las Vegas as the US economy has shown signs of picking up. But Macau operators plan to increase the appeal to middle-income gamblers and families for its gaming and resort experience, so there is still possible upside there. The Cotai Strip expansion is expected to provide a wider avenue of revenues beyond gaming, for further growth and stability.
Sands, especially, but also Wynn and Melco Crown are strong operators, whose stocks are worth considering on price pullbacks. Macau gaming should be a vibrant industry for some time to come.
Jim Trippon, founder of Trippon Financial Media, Inc., is a maverick that has dedicated his investment career to helping investors make smarter financial and stock selection decisions. Trippon, an internationally recognized expert on global and value investing, has a deep passion for finding hidden value in global equity markets. Trippon started his career as a financial statement examiner with Price Waterhouse which allows him to dissect a public company’s financial picture and better identify hidden gems. Trippon’s savvy approach to investing and personal finance makes him in high demand by major media who seek his unique perspective on stocks and global economics. He has been featured in top publications both in the US and abroad including Bloomberg, Investor’s Business Daily, The New York Times, The International Herald Tribune, Stock Futures and Options Magazine, The Bull and Bear Financial Report and he regularly appears on broadcast television including as an on air contributor to CNBC, CNN, Fox Business, and Fox News.
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