Casino stocks outperform on strong revenue

Macau gaming stocks surged yesterday after gaming revenue jumped to a record high last month, brushing aside concerns from investors and challenging analyst predictions.
Gaming revenue tipped over the MOP 20 billion mark for the first time last month, up 48 percent from MOP 13.57 billion a year earlier, according to official statistics released last Friday by the Gaming Inspection and Coordination Bureau.
The accumulated casino revenue so far in 2011 reached MOP 58.5 billion, up 42.9 percent year-on-year buoyed by an increase in visitors from mainland China. However, analysts believe the numbers will drop later in the year to finish with a 30 percent increase year-on-year, a forecast that is within Macau’s top gaming regulator expectations.
“I believe the gaming revenue will grow between 20 and 30 percent this year,” the director of the Gaming Inspection and Coordination Bureau Manuel Joaquim das Neves told the Macau Daily Times yesterday.
Even though the increase rate is over 40 percent from the previous year and two new records have already been set in the first quarter, Neves says gaming revenues are in line with the last quarter of 2010.
In the three months ending December 31, local casinos pocketed MOP 55.1 billion, just MOP 3.42 less than in the first quarter of this year.
“I think the trend will not change much [from the last three months of 2010], so I do not foresee the same growth rate [in revenues] like the one Macau had last year [a 57.8 percent jump year-on-year].”
“I do believe we had three very strong months, but it might be possible we’ll see a slight drop this month,” Neves said.
According to the regulator, both the VIP and the mass-market are performing well. Nevertheless, the VIP segment is still surging ahead.
Analysts believe that local casino revenue growth will lose steam throughout the year, but even so they are extending their earlier predictions.
“We are now increasing our forecast of Macau’s casino revenue growth for 2011 to 30 percent year-over-year,” said Jonathan Galaviz, casino industry analyst and chief economist at Galaviz and Company consultancy.

‘I believe the gaming revenue will grow between 20 and 30 percent this year. […] I do not foresee the same growth rate like the one Macau had last year,’ said top gaming regulator Manuel Joaquim das Neves

“Our firm continues to believe that the majority of Macau’s casino revenue growth is substantially due to the excess monetary liquidity in the hands of China’s consumers,” Galaviz told to MDTimes yesterday.
“The macroeconomic environment of Asia and China is the main driving force behind further increases in both Macau casino revenue and overall tourism visitation,” he added.
Goldman Sachs also said yesterday that its gaming revenue forecast of MOP 226 billion this year, a 20 percent rise from last year, could end up being too modest, according to financial website MarketWatch.
A 30 percent growth would push Macau’s casino revenue to MOP 244.8 billion this year.

Shares up

The market will also benefit in the second quarter when Galaxy Entertainment opens their new casino resort in Cotai on May 15. “It is highly likely that the opening of Galaxy’s new property will further propel Macau’s casino revenue upward to record highs,” Galaviz believes.
However, he cautioned that, ‘at any given time, the macroeconomic condition of Asia could change and operators in Macau should always strategise for all possible future scenarios’.
Pundits’ optimism over the local gaming market has benefit casino operators’ shares in Hong Kong, which outperformed the broader market yesterday.
Trade in Hong Kong shares of Wynn Macau jumped 10.2 percent to HKD 23.70, posting a record closing high, while Stanley Ho’s SJM Holdings surged 8.6 percent, to close at HKD 14.88.
Sands China, controlled by billionaire Sheldon Adelson, which has recently been hit by negative sentiment from an ongoing investigation by the Hong Kong Securities and Futures Commission, surged 6.9 percent to HKD 18.48.
Melco International jumped 7.3 percent to HKD 5.56, while Galaxy Entertainment Group rose 4.0 percent to close at HKD 11.92.
Meanwhile, MGM China Holdings, the joint venture between MGM Resorts International and local businesswoman Pansy Ho, will seek listing approval from the listing committee of the Hong Kong stock exchange this month, the Wall Street Journal reported, quoting an unnamed source.
The main goal, it added, is to raise around USD 1 billion (MOP 8 billion) in an initial public offering in May.