More Room for Growth in Macau?

Analysts believe Macau has plenty of room to expand, which would allow companies like the Sands, Wynn, and Melco Crown to continue their spectacular growth in the area.

Feb 15, 2014 at 7:00AM

For some time now, major casino operators such as Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), and Melco Crown Entertainment (NASDAQ:MPEL) have been investing heavily in Macau, China's answer to Las Vegas. Indeed, it has proven to be a lucrative opportunity for these companies, as the growth of the gambling industry in the area has been enormous. Despite the intensive development going on in the region, some commentators still see more room to grow. What does this mean for casino operators?

Original

Source: www.giantbomb.com

Underpenetrated
Nomura
recently came out with a research report on Macau, and it is decidedly optimistic. According to the Japanese firm, growth in the area might just be getting started. Already seven times the size of Las Vegas, projections indicate that the market size could almost double from $45 billion to $80 billion. The reasons for this are twofold.

Firstly, the Macau market is seen as being underpenetrated. According to Nomura, a market is mature when it reaches a penetration rate of around 25%. At the moment, the penetration rate is estimated at only 1.4%-2.3%. This means that visits could be roughly 12 times the 2013 figure before the market reaches maturity.

Secondly, in such immature growth markets, supply apparently drives growth. In other the words, the more casinos that are available, the more growth is to be expected. As such, investments in new Macau properties are likely to pay off big-time for companies developing their presence in the area. In any case, the potential for growth is far higher than in Las Vegas.

Still going strong
Let's take a look at the Macau performance from the three major US casino operators. Sands China, a fully owned subsidiary of Las Vegas Sands, delivered solid growth for its last report, although not quite as much as analysts had hoped. Net income soared 40% to reach around $655 million on a 28% increase in revenue. The company has been investing aggressively in expanding its product offerings and is also getting a boost in traffic due to large investments in tourist infrastructure in the area.

Wynnmacau

Source: www.hotelchatter.com

Wynn's Macau operations are also growing quickly. Wynn's Macau profit was up 32% for the fourth quarter, largely driven by margin improvements, as the company has been working on attracting more mass-market gamblers who pay in cash. Analysts seem bullish on the company's prospects to boost its market share in this segment, noting that the company should be completing its renovation of the Wynn Hotel soon.

Melco Crown operates two gambling resorts in Macau and is according to a Bloomberg survey of analysts the highest-rated casino stock in the area. Following the 'baccarat boom,' which fueled the area's 18% growth in gaming revenue over 2013, the company is working on constructing a third resort in Macau. Additionally, the Hong Kong-based company is looking to open a resort in the Philippines. Over the last six months or so, the stock has soared around 90%, putting it at its highest valuation since 2011.

The bottom line
Analysts certainly seem optimistic about Macau's prospects, if Nomura's recent note is anything to go by. Many commentators believe the area is looking forward to another profitable year, as underpenetration and increased supply should boost the top and bottom lines of casino operators.

Wynn and the Sands have both been investing heavily in the area and are slowly but surely switching to the more lucrative mass-market segment. Melco Crown is also working on expansion, so investors should be particularly bullish on the company's prospects going forward.

Why gamble?
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

 

Daniel James has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers