By Lisa Twaronite
Most Hong Kong casino shares shone even against Friday's bright
market performance, and some remain upbeat on the sector despite a
recent slowdown in Macau's gambling revenue.
Gross gambling revenue in June in the former Portuguese colony
on China's southern coast fell 20% from May's record high, likely
because the World Cup distracted high-stakes gamblers. Still,
revenue jumped 65% from a year earlier. Gross gambling revenue is
the amount wagered minus the winnings returned to players, which
measures what a gaming operation earns before taxes, salaries and
other expenses are paid.
June revenue totaled 13.6 billion Macau patacas ($1.2 billion),
compared with the 17.1 billion patacas recorded in May, according
to data released earlier this month by Macau's Gaming Inspection
and Coordination Bureau.
The development of Macau's Cotai Strip is still the biggest wild
card in the long term, analysts say, which could be boom for not
just the companies with a Cotai presence, but for the overall
sector as well.
"In our view, all six operators will benefit if a critical mass
is created at Cotai, attracting more tourists to visit Macau. If
Cotai fails, not only Cotai casino operators will suffer, Peninsula
players will also get hurt, as their growth opportunity also lies
in Cotai," said Citigroup analyst Anil Daswani in a note to clients
Friday.
Sands China Ltd. (SCHYY), or SCL, and Galaxy Entertainment Group
Ltd. remain Citigroup's top picks, as they are the only operators
with new casinos opening in Cotai in 2011, Daswani said.
On Friday, shares of SCL and Galaxy were both up 1.5%, while
Hong Kong's Hang Seng Index was up 1.4%. China's Shanghai Composite
rose 0.5%.
Tycoon Stanley Ho's SJM Holdings Ltd. was up 1.8%. But Wynn
Macau Ltd. (WYNMY) slumped 0.9%.
Wynn Macau's U.S. parent, casino operator Wynn Resorts Ltd.
(WYNN), said Wednesday that the preliminary second-quarter
operating loss for Wynn Las Vegas widened to $17.2 million from
$8.3 million a year earlier, even as its revenue increased 1.7% to
$318 million.
In regional trading, Japan's Nikkei Stock Average rose 1.8%, and
the broader Topix added 1.5%. Australia's S&P/ASX 200 climbed
1.8%, and South Korea's Kospi was 0.7% higher.
Shifting Sands
The Las Vegas Sands Corp. (LVS) will release its second-quarter
results next Wednesday. Citigroup's Daswani forecasts SCL, its
Macau subsidiary, to have grown net revenue by 37% from a year
earlier to $1.01 billion, thanks to Macau's strong second-quarter
gross gaming revenue.
"We believe that Sands China's decision to shift its focus
towards direct VIP business has led to junket VIP business
migrating from SCL to Wynn Macau. Our channel checks seem to echo
our view," Daswani said.
Tour operators' commissions on the organized junkets to Macau
from mainland China can squeeze margins, even on high-end VIP
junkets, so analysts say the direct VIP business can be
significantly more lucrative for operators.
SCL currently has about a 19% market share, down 3 point from
last month, Daswani said, but the loss "is not necessarily a bad
thing" for SCL if it can offset this by increasing the volume at
its direct VIP business.
According to Citigroup's channel checks, Macau's gross gambling
revenue for the first 18 days of July reached 8.9 billion patacas,
up 77% from a year earlier and up 2% from the previous month.
Citigroup has a buy rating on SLC, but nonetheless there is a
risk that investors will reduce their portfolio weightings in Macau
in the months ahead, particularly if gaming revenue growth
continues to slow.
"Monthly gaming revenue has not fallen below the 10 billion
[pataca]-mark since July 2009, which means that heading into August
we expect to see the growth rate moderate to 10-25%," Daswani
said.
Other Macau casino operators include Melco Crown Entertainment
Ltd. (MPEL) MGM Macau, a joint venture between Pansy Ho and MGM
Resorts International (MGM).