Macau has 600,000 permanent residents, which is less than one quarter of the 2,560,560 visitors to the island during the month of February 2014 alone. This means that the gaming industry there, and profits for companies like Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), and Melco Crown (NASDAQ:MLCO), are dependent on visitors.
Hong Kong and Macau, which were British and Portuguese colonies until 1997 and 1999, respectively, are now special administrative zones of the Chinese government. They have their own border controls, and visitors, even Chinese mainlanders (especially Chinese mainlanders, in fact), have to go through unpleasant customs checkpoints when entering and leaving Macau.
However, this is about to get easier. The Chinese government recently announced the coming trial of using digital entry and exit accessibility to and from Macau and Hong Kong. China is planning to issue smart cards that will replace the current paper permits between the mainland, Hong Kong, and Macau.
Making it easy for most of Macau's visitors
The smart card will be similar to an electronic passport, in which personal information is stored and accessed when the person passes through a checkpoint. This will make getting in and out of Hong Kong and Macau incredibly easy. The government started accepting applications for the smart cards from Guangzhou residents who live near the Hong Kong border around the end of May.
In 2013, visitors from the mainland to Macau made up 64% of the total visitations, while those from Hong Kong made up another 20%. Together, these 84% of visitors had to go through the annoying customs checkpoints on each side of their journey. With these innovative new smart cards, even more Mainland Chinese and Hong Kong residents will be excited to come play in Macau.
The need for more tourists: Mass market revenues
For the first part of Macau's gaming life, gambling companies have been focused on VIP gamers; these are the high rollers and government officials that place large bets. However, the trend is now moving toward the profits that come from the mass market segment of gamers. With less need for expensive perks like helicopters from Hong Kong and larger numbers of them coming, gaming companies like Las Vegas Sands are now focused on this market segment to drive new growth. In fact, Las Vegas Sands has gained more from this market than either Wynn or Melco Crown in the last five years. Smart cards are going to make it easier to move large amounts of these players easily in and out of Macau.
Where are all of these mass market consumers coming from?
In the company's 2013 earnings release presentation, Las Vegas Sands executives pointed to a rising middle class in China. More and more of those Chinese citizens will travel outside of the mainland in the next few years, and this is a key reason to expect larger mass market numbers going forward. Because this segment already makes up 64% of the Macau visitor total, that could mean a huge influx in Macau visitation rates in the next few years.
Better transportation, now even easier with these smart cards
A bridge between Hong Kong and Macau, and eventually Shenzhen and Macau, is going to add to the number of visitors that can easily get to the city (which is on an island.) While the current options include flying into Macau, taking a helicopter from the mainland or Hong Kong, or taking the one-hour ferry across the water, this 20-minute bridge trip will help gamblers get onto the island faster and with less hassle.
This infrastructure development, expected to be completed by 2015 or 2016, is going to add to the total number of mass market gamers visiting the island. With much less hassle involved with getting through customs on each side of the bridge thanks to smart cards, this development will increase mass market revenues even more.
Easier access from the "Orlando of China"
Just to the west of Macau, separated by the Lotus Bridge, is Hengqin Island. Technically a part of China's mainland, gambling is not legal in Hengqin. However, the area is starting to boom with theme parks, hotels, and other attractions. Chinese citizens go through the hassle of checkpoints each time they play in Macau and then cross the short bridge to play and stay in Hengqin, since it is part of the Mainland. Smart cards will make this area considerably more attractive to would-be Macau visitors that have families.
Foolish conclusion: Easier entry, more players, more profits
Mass market consumers will continue to drive growth in Macau for years to come. With more of the new Chinese mainland middle class coming to Macau across a new bridge from Hong Kong or from Hengqin, the only issue making gaming in Macau a hassle is the inconvenience of customs checkpoints. The new smart cards are going to ease some of this hassle, and will make gaming in Macau even better for the 84% of its visitors that come from China. Innovation like this is just one more reason to continue being bullish on Macau and companies like Las Vegas Sands, Wynn, and Melco Crown.
Bradley Seth McNew owns shares of Las Vegas Sands. 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.
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