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Ahead of the game

Gaming counters maintain their upward momentum, boosted by strong second quarter results for Sands China After their price softness in June, Macau gaming stocks managed an appreciable rebound, outperforming the Hang Seng Index. The growth was on the back of yet more strong figures for gaming revenue and the positive outlook for the sector. By July 25 […]

Gaming counters maintain their upward momentum, boosted by strong second quarter results for Sands China After their price softness in June, Macau gaming stocks managed an appreciable rebound, outperforming the Hang Seng Index. The growth was on the back of yet more strong figures for gaming revenue and the positive outlook for the sector. By July 25 gaming stocks – with the exception of MGM China (2282.HK), listed relatively recently – had averaged a return of 75 percent since the beginning of this year, while the benchmark Hang Seng Index had remained in negative territory. The highlight of the month was Sands China’s (1928.HK) second-quarter results. The company doubled its net profit to US$267.4 million (MOP2.14 billion) from a year before, parent company Las Vegas Sands announced. Net revenue rose 16.3 percent to US$1.21 billion, while adjusted property earnings before interest, taxes, depreciation and amortisation (EBITDA) rose 27.1 percent to US$382.1 million. Sands China also announced the immediate promotion of Edward Tracy to chief executive. Mr Tracy had been serving as president and chief operating officer for a year. Las Vegas Sands chief operating officer Mike Leven had been acting as Sands China’s chief executive since the company fired Steve Jacobs from the job in July last year. In a conference call, Mr Leven confirmed that the company’s development on parcel five in Cotai would open in the first quarter of next year. He said the company had struck agreements with two big hotel brands, which he did not identify, after a deal with Shangri-La Asia fell though in March. The parcel five development will have 1,800 rooms and suites, retailing areas, almost 28,000 square metres of meeting space and 11 food and beverage outlets, along with a casino and VIP gaming areas covering 9,850 square metres. “The opening of what we are calling Lot 6A, which will feature nearly 2,000 Sheraton-branded rooms, is on track for the third quarter of 2012,” Mr Leven added. Lot 6B is scheduled to open early in 2013, adding another 2,000 rooms to the complex. Humdinger slinger Mr Leven said it was expected that there would be altogether up to about 530 gaming tables on parcels five and six – fewer than the 670 previously announced. He said Sands China had earmarked US$125 million for capital expenditure on its VIP business. This is for “a variety of projects, several of which will be completed ahead of Chinese New Year 2012,” he said. Wynn Macau also posted positive results for the second quarter. The company’s adjusted property EBITDA reached US$314.3 million, 45.4 percent more than a year before. But Wynn Macau’s net profit dropped 10 percent to US$120.3 million because of a US$107 million charge reflecting the estimated present value of a charitable contribution made by Wynn Macau to the University of Macau Development Foundation. This consists of a US$25 million donation made in May and a commitment to make further donations of US$10 million every year from 2012 to 2022, making a total of US$135 million. In a conference call, Wynn Macau chairman and chief executive Steve Wynn said his company’s project for Cotai is “moving right along nicely and on schedule,” although the company is still waiting for government approval. Mr Wynn said the property will have 500 gaming tables, 1,500 rooms, restaurants, shops, and a theatre. “This project is going to justify the time it took to create it. It’s a humdinger,” he said. Taiwan target Still to announce their second quarter results are all the other gaming operators. Morgan Stanley expects the biggest quarterly growth in EBITDA to be achieved by Melco Crown Entertainment (NASDAQ:MPEL), seen rising 44 percent in the second quarter from the first because of a normalising VIP win rate, and Galaxy Entertainment (27:HK), seen rising 34 percent because of the opening of its new casino. MGM China is Union Gaming’s hot pick for Macau. In its maiden research note on the stock, Union Gaming said the company “is just beginning to hit its sweet spot and demonstrate the true potential of its existing asset, MGM Macau”. The note highlighted not only positive factors like the increase in VIP volume, but also the mass market and slot sides of the business. It also drew attention to EBITDA margin expansion due to greater operating efficiency and growing gaming volumes. “We think MGM Macau has the potential to break the US$600 million EBITDA level in 2011,” Union Gaming said. For now, MGM China is still waiting for a piece of land in Cotai. Chief executive Grant Bowie said the company had been working “intensively” on a blueprint for Cotai and hoped to get the government’s nod “soon”. Mr Bowie did not disclose much detail about the project, but said it would have aspects other than gaming. With outbound tourism from the mainland booming, the chairwoman of MGM China, Pansy Ho Chiu King, has said her company may invest in Taiwan. Ms Ho told Taiwan’s Want Daily newspaper: “The likelihood of investing in Taiwan is pretty high because now is a good time.” She was referring to Taiwan’s recent acceptance of mainland tourists travelling as individuals rather than in groups. “The investment plans will target hotels, as well as travel- and service-related businesses,” Ms Ho said. Reading tealeaves The cliffhanger around the Macau Studio City development and a potential casino onsite has kept spectators in suspense. Last month, secretary for transport and public works Lau Si Io said the 2008 revised land grant for Studio City, that was not made public, does not allow for gaming facilities. Mr Lau emphasised instead the need for any development to have plenty of facilities for film production. His words failed to sway analysts. In a note to investors, Union Gaming called Mr Lau’s comments a “nuanced answer”, saying it was unlikely that Melco Crown Entertainment would have bought into Macau Studio City “without assurances from the Macau government (at the highest levels) that the project would be allowed to move forward with a casino and that table caps would not become an impediment”. Nevertheless, Melco Crown boss Lawrence Ho has become less sanguine than before. In June, he said Studio City would open with 300 to 400 gaming tables and 1,200 slot machines, assuming government approval. Last month, in a Melco Crown statement announcing the completion of its acquisition of 60 percent of Macau Studio City, the property envisaged was described as “a large scale-integrated gaming, retail and entertainment resort” but no details about the casino were mentioned. “Our plans include a variety of interactive, production-studio-derived attractions designed to captivate our target market and significantly expand Macau’s appeal as a multi-faceted tourism destination,” the statement quoted Mr Ho as saying. “We look forward to working closely with the Macau government to bring this project to completion.” By Ray Chan

OPINION

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