January second best for casino revenue

Analysts are expecting strong 2011 fourth quarter results from gaming operator Sands China, after the local casino market had its second best month in January

Despite a slow start, the local gaming industry has recovered during the Chinese New Year period to record the second highest ever revenues in January, exceeding analysts’ estimates.
According to official data released by the Gaming Inspection and Coordination Bureau yesterday, gross revenues soared by 34.8 percent from the MOP 18.6 billion it recorded in the same period of last year.
This figure also shows a 26.1 percent growth on the previous February’s figure, which included the Lunar New Year, one of the two weeklong vacations in mainland China.
The strong growth is even more surprising after the gaming boom slowed down sharply to 15 percent in the first few weeks of 2012, HSBC Global Research analyst Sean Monaghan wrote.
However, it proved to be just a lull before the start of the Chinese New Year and the results were better than the most conservative forecasts. For instance, industry sources quoted by Portuguese news agency Lusa expected gross revenue just above MOP 23 billion.
“Better infrastructure is drawing more Chinese tourists to Macau, benefiting the whole industry,” Gary Pinge, an analyst at Macquarie Securities Ltd told Bloomberg.
On the other hand, the total gaming revenues proved to be less robust than earlier estimates that pointed to a new record high. In early January Union Gaming Research said it expected gaming revenue “in a range of MOP 28 billion to 28.6 billion”.

Wary outlook

“The year-on-year comparison forecasts are becoming more and more challenging for us,” CIMB analyst Teng Yee Tan told Dow Jones Newswires, noting the opaqueness of the junket business.
The current record is at MOP 26.9 billion and was posted last October, driven by China’s Golden Week holiday. The MOP 25 billion revenue registered last month is the second best monthly figure and it’s already higher than in the whole of 2002, MOP 23.5 billion.
Although the government decided to liberalise the gaming market in 2002, the first casino outside of Stanley Ho’s monopoly only opened two years later.
The good results also helped local gaming operators rise in the Hong Kong stock exchange yesterday, even though the benchmark Hang Seng index dropped a further 0.3 percent, after tumbling 20 percent last year.
Sands China, Asia’s biggest casino operator by market value, gained 0.8 percent to HKD 26.45. SJM Holdings, founded by billionaire Stanley Ho, increased 2 percent to HKD 14.16. Galaxy Entertainment Group rallied 1.8 percent to HKD 17.22.
But analysts are still wary of the coming months. Gary Pinge, for instance, predicted slower growth from February as high-stake gamblers find it harder to raise credit. Teng Yee Tan forecasted 15-18 percent growth for 2012.

Sands results

Wells Fargo & Co analyst, Cameron McKnight, expects February revenues to fall as much as 14 percent. If that were to happen, it would be the first year-on-year drop since June 2009, when Macau was feeling the pinch from the global financial crisis.
Philip Tulk, head of casinos and gaming research at Royal Bank of Scotland in Hong Kong, said it was unlikely people would rethink their forecasts due to the January results. “I don’t think people will be revising up estimates on the back of one month,” he told Reuters.
Meanwhile Sands China’s parent company, US-based Las Vegas Sands will report its fourth quarter results today (local time).
Analysts project a profit of USD 0.56 per share, up from USD 0.42 year-on-year. In addition market consensus expects revenues to grow by 22.1 percent in the last quarter of 2011 to reach USD 2.5 billion.
Sands will be the first operator to announce its 2011 results but the market is expecting very positive results from most gaming operators.
“We expect companies with operations in Macau to outperform given their exposure to what we view as better supply-demand fundamentals, strong economic growth, and increasing transportation investment,” Standard & Poor’s analyst Esther Kwon wrote in a note.

V.Q.