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Macau, instead of Las Vegas, represents extreme growth for gambling operators

January 08, 2012 | About:
The emerging markets have always been considered the potential for rapid growth, and as the whole the size of any businesses could be really huge. There is one business that makes money based on one of the basic demands of human being, the desire to make money fast. That is gambling. Whenever people talked about big gamble casinos in the world, people would mention about Las Vegas. But now the rising star place for gambling gradually moving to the other side of the ocean, Macau and Singapore.

The market in Macau is increasing to the huge size, five times that of Vegas. The gaming revenue for 2011 was up 42%, consistent growth, with the value of $33.5 billion for the year. Union Gaming Group’s Macau-based principal Grant Govertsen wrote in his research note: “To put this year’s gross gaming revenue and growth rate into perspective, total gross gaming revenue in Macau will be approximately 5.5 times the gross gaming revenue generated on the Las Vegas Strip, while the rate of growth in Macau will be roughly 10 times the rate on the Las Vegas Strip.” And American Gaming Association has commented that the nation’s 20 commercial casino markets produced almost $31 billion in gaming revenues in 2010. The Strip accounted for almost $5.8 billion of that.

In the recent report published by PricewaterhouseCoopers, it forecasted that sometime next year the gaming revenues in Asia would overtake those in the US as a whole- with Singapore with Marina Bay Sands also becoming a major casino destination. Macau recently got 06 licensed casino operators to build or propose to build in the next few years. Macau has been estimated to double 2011 revenue over the next 05 years, to account about a third of all casino earnings worldwide. Macau is the only place in the whole of China where it is legal to gamble in a casino, attracting a lot of gamblers around the world, including Chinese. As any gamblers’ psychology, one commented that “If I win money, I take it back home. If I lose, I go back to get some more – back and forth, back and forth”. Jim Murren, CEO of MGM Resorts International (MGM), the active gaming operator in Macau, discussed that his corporate profits were up 80% last year in Macau and they were just starting to get the momentum going. Macau would be for MGM and in 12 and 13, the key is, when people think about Macau, that gamblers that go there, mostly Chinese, coming from roughly one province and think about how mobile their customers were going through the high-speed train networks and other transportation. That would translate into more visitors visiting Macau.

So Macau in particular and Asia in general is already the dream land for gambling business, bringing in a lot of revenue for big gamble operators such as MGM, Las Vegas Sands (LVS), and Melco Crown Entertainment (MPEL), Wynn Resorts (WYNN), should investors follow the big macro extremely favorable news on potential growth to look into those stocks?

Symbol Market Cap ($mil) P/S P/B P/E P/CF
MGM 5,440 0.9 0.9 1.9 9.9
LVS 30,898 3.9 4.1 23.6 13.2
WYNN 13,362 2.6 5.2 25 8.7
MPEL 5,076 1.4 1.9 25.1 7
Industry 1.5 1.9 12.1 7.6


The industry environment for gambling business is always favorable, the customers, like cigarettes, are quite addicted as it is the basic of the human psychology. However, there are four main issues: the first is that the business is subject to regulations watch, if any operators would like to expand in other Asia markets. Second is the fierce competition between those big operators so we do not know which will ultimately win. Third is the huge capital expenditure it has to spend on the hotel buildings, renovation so even with the amazing top line, the bottom line or the free cash flow to owners might not be that great. Last but not least, is the highly leveraged financial structure that those operators got in their balance sheets. Any investors who would like to invest into those operators have to examine each situation carefully in order to make safe and sound investments.

About the author:

Anh Hoang
Money manager into global equities, especially with US and Vietnam markets. CFA level 3 candidate. Lecturer for Stalla - CFA course in Vietnam

Visit Anh Hoang's Website


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