Are No New Casinos in Macau in 2014 A Bullish Sign?


The Macau skyline is dazzling from the non-stop building of casino resorts
since 2005. Source: ChinaTourAdvisors.com

No new major casinos in 2014 will prove to help current properties realize profits during the year. Each year since 2005, there has been at least one major casino resort opening in Macau. An analyst from Citi noted that "2014 is the first year since 2005 with no major casino opening to drain growth," continuing on to say that the largest hotel holding in Mainland China is opening up across the bay, which should increase demand by bringing more visitors to Macau.

This may seem like a strange reason to be bullish, but the idea is that a new megaresort has been finished in Macau each year since 2005, meaning that profit has always been drained by development costs. The Citi analysts noted that "96 percent of growth will be shared by the existing properties...The lack of significant opening until mid-2015 provides an 18 month runway." 2014 will be the first year in which the existing casinos can share all of the profit made this year, adding some cash to each company.

Las Vegas Sands (NYSE: LVS  ) for instance, has been building almost nonstop over the past few years, now working on its fourth property in Macau. Sands Cotai, the new property, is not going to open until mid-2015. MGM Resorts  (NYSE: MGM  ) and Wynn Resorts (NASDAQ: WYNN  ) are expected to open new properties in the following year or two.

In 2014, companies will be able to focus on getting profit out of their current, very profitable, locations. The breather will be welcome for a company like MGM, which plans to open its newest Cotai location mid-2016, a $2.6 billion investment that will have twice as many guest rooms as the current MGM Macau.

More signs of great outlook for 2014
Two more signs show that Macau will likely have another great year in 2014. The first sign is the likely completion of phase one of new transportation initiatives making it easier for gamers getting to, and around, Macau. This will be important for the second sign, which is casino companies' shift of focus from VIP gamers that need special transportation to the island, to mass-market gamers who get to the casinos themselves. 

No. 1: Infrastructure and transportation improvements
The two new transportation links coming to Macau are going to make getting gamblers to casinos on the island even easier. A new high-speed light rail system within Macau will link the different parts of the island, making it easier for gamblers to get around the island and to the different casinos. When the first phase is complete, 21 stations will connect the two main areas of Macau, the North-east boundary and Taipa, which will connect most of the main casino areas and the airport. The second phase will add links to the Western Harbor, and together with the first stretch of rail will be able to transport 8,000 passengers per hour.

Additionally, a full bridge between Hong Kong and Macau, and eventually Shenzhen and Macau, will help gamblers get onto the island faster and with less hassle. Much of Macau's business comes from Hong Kong, Chinese citizens, or those visiting Hong Kong on business. For non-VIP gamers, the main transportation to the island is to take the ferry from the Hong Kong port to Macau. The ferry ride takes upwards of one hour on a relatively small, swaying vessel. With the new bridge, gamers will be able to get from Hong Kong to the Macau casinos within 20 minutes by taxi.

A minimum of $1.6 million per visit is required to play in this VIP room at the Galaxy in Macau. Source: Business Insider

No. 2: A shift in focus from VIP players to mass-market gamers
A shift from VIP focus to mass-market focus is another way these companies will drive growth. Operations in Macau over the last decade have been largely focused on the profits coming from VIPs, the high rollers of the gaming industry, which often require expensive transportation and special perks. However, new industry trends show that there will be more profit from focusing on the mass-market segment of gamblers. Morgan Stanley reports estimates that in 2014, growth from mass-market gamblers will top 28% in Macau; this is compared to VIP gamer growth of just 13%. Macau casino operators such as Las Vegas Sands, Wynn Resorts, and Galaxy Entertainment are all seeking to capitalize on this trend early.

This was evident in Wynn Resorts'  (NASDAQ: WYNN  ) 2013 year-end financial results. The company's fourth-quarter profits increased by an astounding 92% year over year, led mainly by mass-market gaming growth in Macau. This segment of gamers in Macau increased 35% compared to VIP gaming, which grew by 24%. Wynn is looking to continue this trend toward higher profits from the mass-market segment in hopes of continuing its strong growth in 2014 and beyond.

Las Vegas Sands is also seeing the increasing profit potential from the mass market gaming segment as a means to continue strong growth in 2014. Fourth-quarter net income for the company's Asian operations increased 40% over the same quarter in 2012, from $467 million to $655.6 million. This has been in large part because of an increase in total gamers, more than the net worth of each individual gamer. Adding shopping malls, theaters, and exhibition halls in the resorts and increasing the number of hotel rooms shows that Sands continues its commitment to appealing to more and more consumers instead of only the wealthiest.

Stay bullish, stay profitable
Many analysts have advised that growth in Macau will slow this year, from the 18.6% revenue increases over 2012 that the government reported, to estimates of 17%. While the companies operating in Macau have seen incredible growth recently, including Las Vegas Sands' share price increase of nearly 3,500% in the last five years, there is still room for more growth. With fresh infrastructure developments and more mass-market gamers, there are plenty of reasons to stay bullish on Macau in 2014 and beyond.

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