Which Company Will Win the Race to Gamble in Japan?

The son of the Melco Crown Entertainment (NASDAQ: MPEL  ) CEO has noted that the company is ready to enter the Japanese market. The company is just waiting for the government to relax its current ban on casinos. Though the government allows horse racing, casinos remain banned.

Melco could have casinos in operation within four or five years, if Japan just gave the go-ahead. The company is already negotiating partnerships with several Japanese companies. It has also already identified suitable locations, which include places in Tokyo and Osaka.

The potential profits for casinos is large in Japan. The country is the third-largest economy in the world, and the market potential of casinos there could be as much as $20 billion per year, which is about 50% of that of Macau. 

Everyone wants a piece of Japan
In a recent interview, MGM Resorts International (NYSE: MGM  ) CEO Jim Murren said that he would like the doors for casinos in Japan to be opened and that he had ambitious plans for a market which he believes could be one of the top gambling hubs in the world. Las Vegas Sands (NYSE: LVS  ) CEO Sheldon Adelson has said that his company would be prepared to spend whatever it takes to get a casino operating in Japan.

MGM CEO Murren has said that Japan could see considerable growth in tourism and travel earnings if casinos become legal there. About 10 million tourists currently arrive in Japan each year, and the government has ambitious plans to increase this to 20 million by 2020 and 30 million by 2030. Japan could have an experience similar to that of Singapore, where international tourist visits grew by 60% after the government allowed casinos to build there.

Even without Japan, Melco is strong
The largest players here are Melco Crown and Las Vegas Sands. Melco Crown generated all of its 2013 revenue of $5.1 billion from Macau. Its 2013 revenue grew 33% from its 2011 revenue figure. Las Vegas Sands generates about 65% of its revenue from Macau. 

Last year, the gaming industry in Macau took in revenue of $45 billion versus just $6.5 billion from Las Vegas. However, 60% of revenue for casinos in Las Vegas comes from non-gaming services such as shows, hotels and bars, whereas well over 90% of the revenue generated in Macau comes from gaming. Goldman Sachs still estimates that gross gaming revenue in Macau will grow by 16% year-over-year in 2014. First-quarter gaming revenue in Macau grew by 20% year-over-year. 

Beyond Macau, Melco Crown will open its City of Dreams Manila Casino, located in the capital city of the Philippines, in 2014. This will be Melco Crown's first move abroad.

How the shares stack up
Melco Crown remains a growth stock. Over the past few months, analysts have raised their earnings estimates for the current quarter and the next quarter. The company managed to grow its earnings per share by an annualized 135% over the last five years. Expectations call for earnings per share to grow at 35% annually over the next five years.

What's more is that Melco Crown remains one of the cheapest casino stocks with potential exposure to Japan. Shares of MGM popped 6% last week on a better than expected quarter, driven by the strength in Macau. Its earnings per share beat consensus by 144%. Las Vegas Sands also beat first quarter earnings estimates thanks to Macau. The company's total net income was up 36% year-over-year for the first quarter, with earnings per share coming in at $0.97, above the consensus of $0.94. Las Vegas sands has four resorts in Macau. MGM only has one resort in Macau, but is developing a Cotai casino that's expected to open in 2016.

MGM China (which is made up of its Macau resort) saw revenues jump 26% year-over-year for the first quarter. Company wide, MGM generates $9.7 billion in annual revenues, which is still well below Las Vegas Sands' $14.5 billion. However, Melco Crown is below both with $5 billion.

MGM is trading at a P/E of 43 based on next year's earnings, while Las Vegas Sands trades with a P/E of 18. Melco Crown has a P/E of just 17. Melco Crown's debt to equity ratio is less than half that of MGM and Las Vegas Sands. Considering its future earnings growth expectations, Melco Crown's price-to-earnings-to-growth, or PEG, ratio is low at 0.6.

Bottom line
Melco Crown remains the best way to play Macau. Its shares trade at an attractive price and analysts still have high hopes for growth from the company. The company's growth potential could be even higher if Japan lifts its ban on casinos. For investors who look to gain exposure to the fast-growing gambling market abroad, Melco Crown is worth a closer look.

Will this stock be your next multi-bagger?
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2943719, ~/Articles/ArticleHandler.aspx, 9/22/2014 2:42:55 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 17,168.16 -111.58 -0.65%
S&P 500 1,991.68 -18.72 -0.93%
NASD 4,514.24 -65.55 -1.43%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/22/2014 2:27 PM
GS $185.50 Down -0.70 -0.38%
Goldman Sachs CAPS Rating: ***
LVS $60.11 Down -2.22 -3.56%
Las Vegas Sands Co… CAPS Rating: ***
MGM $22.43 Down -0.69 -2.98%
MGM Resorts Intern… CAPS Rating: ***
MPEL $26.17 Down -0.89 -3.29%
Melco Crown Entert… CAPS Rating: ****

Advertisement