Macau Can't Stop Itself

Macau posted the year's best year-over-year growth in gaming revenue during June, a sign that gaming isn't anywhere near slowing down in China. Casinos took in just over $3 billion, down from May, but up 52.4% from last year -- the best monthly growth in 2011.

For the first six months of the year, gaming revenues are up 44.6%, and with only one major casino opening, the current operators should cash in. The opening of Galaxy Macau on the Cotai Strip helped drive gaming revenue higher in May and its neighbors Las Vegas Sands (NYSE: LVS  ) and Melco Crown (Nasdaq: MPEL  ) should have received some overflow from the event.

As Cotai becomes the center of gaming in Macau, it will be interesting to see how other casinos on the Macau Peninsula fare. Sands Macau has been successful staying profitable as newer casinos started opening, but the industry's move toward Cotai is a geographic shift, not just increased competition. Wynn Resorts (Nasdaq: WYNN  ) and MGM Resorts (NYSE: MGM  ) , which both have plans to build on Cotai, may miss some of that growth until those casinos open, and investors should keep an eye on the trends during the second quarter.

Too much, too fast
All of this growth and the corresponding profits at casinos have some wondering if gaming concessions will change when they begin to expire in 2020. You don't hear much about this with gaming companies, but it's a risk investors should be aware of.

Last week, Reuters quoted Gary Pinge, a Hong Kong-based analyst in the gaming sector, as saying the government may re-evaluate its tax structure in the next round of concessions. It's also possible that gaming licenses would not be renewed for the six operators there, although I'll put that at a minuscule possibility right now.

The incredible growth in Macau is great right now, but the government will slow it down if necessary, as it has done in the past. If Macau's government had its way, the area would make more money on nongaming activities and maintain a more reasonable growth rate.

These aren't reasons to sell right now, but they are two risk factors investors need to know about when looking at Macau's explosive growth.

Fool contributor Travis Hoium owns shares of Melco Crown that are covered with call options and has sold puts in Las Vegas Sands. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDrawMotley Fool newsletter services have recommended buying shares of Melco Crown. 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.


Read/Post Comments (3) | Recommend This Article (2)

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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.

  • Report this Comment On July 06, 2011, at 4:13 PM, lazzybum wrote:

    2010 is 9 years away. A lot can happen in that time period. Macau has had gaming for a long long time. I doubt the government will not renew the licenses for those six companies. Where are they going to find jobs for casino employees ? It is just a way to keep the share price low so the ones who have not bought will have a chance for lower entry point.

    The more other type of leisure activities the government can encourage the business to build, the better for gaming companies. More people stay longer will just be the ticket for all casinos to cash in.

  • Report this Comment On July 06, 2011, at 7:21 PM, mrkrazyk wrote:

    Lets see, according you you Morons, I shouldn't buy LVS, WYNN or MGM because in nine years when the gaming Licenses MIGHT expire, How moronic, you people need to get a life,

    Why don't you people tell us to sell all our walmart and Google stocks because in 20 years they MIGHT go bankrupt, How utterly Stupid

  • Report this Comment On July 06, 2011, at 10:56 PM, Magicula wrote:

    The Galaxy Macau is not on the "Cotai Strip" because the term "Cotai Strip" is a trademark of Las Vegas Sands Corporation and only applies to its properties. The Galaxy Macau is simply in Cotai.

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