Macau shows its muscle

Despite Germany and the International Monetary Fund’s bailout of the “sick man of Europe”, Greece, the euro’s fall against the US dollar has continued to record low levels. Simultaneously, the euro declined by more than 16 percent against the Chinese yuan. At the same time, global stock markets performed poorly, with many major markets hitting their lowest level as investor sentiment remained weak amid concerns about euro-zone debt in the other PIIGS countries (Portugal, Italy, Ireland, Greece and Spain) and escalating tension between South and North Korea. Sharp decline Moving beyond Europe, the Hong Kong benchmark Hang Seng Index further corrected to a 19,000-point level with the Dow Jones Index once declining sharply to reach the 10,000-point level. The Shanghai Composite Index hit a low close at 2,600 points, even though a report cited from the Shanghai bourse indicated that the overall market liquidity had improved. Amidst all this turmoil sat little Macau, less affected by the global financial unrest. Ferries are fully booked and taxis remain as difficult to catch as ever, especially at weekends when visitors pour into the city from the Macau and Taipa ferry terminals, as well as the Macau-China land border and airport. In the first four months of this year, 8.2 million visitors entered Macau or 12.4 percent more than the same period a year before. The majority – 4.4 million and 2.4 million – came from the mainland and Hong Kong respectively, an increase of 20 and 3.2 percent respectively. Gross gaming revenue for the first quarter of 2010 significantly surged to MOP41.2 billion from MOP26 billion in the same period a year earlier, a 57 percent year-on-year increase. Transparently good Little wonder then that SJM (880.HK), the largest casino operator by market share, reported healthy first quarter results as well as issuing the figures voluntarily and thus increasing its operational transparency. Net profit surged to HK$760 million from HK$138 million last year, a 451 percent rise. Gross gaming revenue rose by 74 percent to HK$12.7 billion. The company, owned by casino mogul Stanley Ho Hung Sun, received 65 percent of its gross gaming revenue from VIP or high-roller gamblers totalling HK$8.3 billion up from HK$4.1 billion, and mass market revenue rose to HK$4.1 billion from HK$3 billion. In May, SJM also lowered the conversion price for its HK$2 billion worth of six-year convertible bonds to HK$5.24 per share from HK$5.35 per share, representing about a 16 percent discount on share price closing at HK$4.81, while none of the bonds have been converted into shares. On the company’s debt to equity position, it has net cash of HK$7 billion, making them the only net cash casino stocks listed on the Hong Kong Stock Exchange, according to the company’s financial statements. It is equally worthy highlighting that both the stock and casino markets hit their bottom last year due to the credit crunch, and also had to endure mainland travel restrictions. Aggressive expansion Meanwhile, Sands China (1928.HK) reported first quarter of 2010 net profits of US$111 million up a massive 300 percent from US$27 million a year ago, while the company’s share price was down by more than 10 percent month-on-month due to weak market sentiment. With its aggressive expansion plans, the company secured a MOP1 billion (US$125 million) financing deal to restart work on the Cotai Strip’s sites 5 and 6. The two phases are expected to cost US$2.4 billion to complete and are set to open by the third quarter of 2011.The expansion project will feature hotels such as the Shangri-La, Traders and Sheraton hotel brands. Charts and graphics in our paper edition and MB online browseable