Casino owners holding a big stake in gambling haven Macau had
plenty of cause to uncork the champagne this Chinese New
Macau, the only area of China where gambling is legal and the
most important profit center for big casino operators, typically
draws record crowds of tourists during the weeklong Lunar New
Year holiday, which this year started Jan. 31.
For the first nine days of February, average daily table
revenue (ADR) climbed 32% to $1.463 billion (Hong Kong dollars)
over the peak ADR of $1.107 billion (Hong Kong dollars) during
Chinese New Year 2013, said analyst Christopher Jones of Telsey
"The environment in Macau continues to be robust," said
The New Year fervor continued through the month, according to
channel checks by Sterne Agee analyst David Bain. Macau
table-only gross gaming revenue totaled 30.33 billion Macau
Patacas -- or about $4.2 billion (U.S.) -- through Feb. 23, he
wrote in a note Tuesday. The February run-rate, with five days of
gross gaming revenue to go, was about 42% year over year, or 38.4
billion Macau Patacas, which would top October's monthly record
by more than 5%.
That's good news for the two biggest casino owners -- Las
Vegas-basedLas Vegas Sands (
)andWynn Resorts (
Las Vegas Sands owns a portfolio of properties in Macau
through its majority-owned subsidiary Sands China Ltd. It
generates 60% of its overall EBITDA and revenue from Macau,
according to Bain's estimates.
Wynn operates a casino hotel resort in Macau through its 72.3%
owned Wynn Macau Ltd. It gets 67% of its total EBITDA and 66% of
revenue from Macau.
A Populist Uprising
Both have been on a roll. And Macau's output through Feb. 23
prompted Bain to raise his Macau February gaming revenue forecast
to a 35% gain vs. a year earlier from his prior range of a 26% to
The higher growth rate owes directly to the holiday, Bain told
IBD. "It was a strong Chinese New Year, driven by mass patron
Jones agrees that Chinese New Year tends to be a more "mass
market" event -- effectively involving midrange spenders. The
higher-rolling VIP gamblers tend to "stay away from the
The growing mass market is more lucrative for Macau's casino
operators because they don't have to pay junket operators to haul
in customers. At the higher end, junket operators serve as
middlemen, drawing more upscale gamblers with free rooms, travel
discounts and other perks.
Bain says mass-market gamblers account for as much as 40% of
Macau casino EBITDA vs. less than 18% for the VIP market. Income
from the mass segment grew at a rate of 35% last year while VIP
grew 13%, he says.
Companies weighted toward mass gaming, such as Las Vegas
Sands, tended to gain market share during the New Year holiday,
Bain said. According to his checks, through Feb. 16, Las Vegas
Sands' table-only market share was an estimated 25.0%, up from
about 21.8% in January.
More hotel rooms this year at Gongbei Border, a portion of
Macau, benefited Chinese New Year and February results, says
Bain. Another plus was the opening of Chimelong International
Ocean Resort on Hengqin Island, which drew about 500,000 visitors
in its first 10 days of business Jan. 28-Feb. 6.
Also beneficial: a "lack of distraction" from last year's
mainland China leadership handover, which caused a "disruption to
VIP visitation" at that time, he says.
For 2014, Bain forecasts total Macau gaming revenue to rise
14% vs. a year earlier to $51.5 billion.
"However, given continued checks on the Island citing
fundamental strength in nearly all segments -- including mass,
premium mass and VIP -- we believe our forecast may prove
conservative," he said.
S&P Capital IQ analyst Tuna Amobi projects Macau gaming
revenue will grow in the low double digits in 2014. That is down
from an 18% gain in 2013 and the 42% rise in 2011, he says.
The Vegas Sun Also Rises
On the U.S. side, Jones says, "there's definitely the
expectation that overall 2014 will be the best year and Q1 will
be the best quarter in Vegas since the downturn."
That turnaround is likely to hinge on corporate meetings and
conventions, he says.
Union Gaming Group analyst Robert Shore says he's "definitely
bullish on the short-, intermediate and long-term outlooks for
overall demand in Vegas."
Short term, the city is looking at a strong Consumer
Electronics Association show in January. Then the ConExpo-Con/Agg
construction industry show comes to the Las Vegas Convention
Center in March. That "strong event and convention calendar"
continues throughout this year, Shore said.
"Business convention guests tend to spend more throughout
multiple channels, including restaurants, covers, rooms, and the
night life segment," he said.
Into The Land of the Rising Sun
Meanwhile, Q4 results for Macau-driven Las Vegas Sands and
Wynn were strong.
Las Vegas Sands posted a 33% rise in earnings for the quarter.
Analysts polled by Thomson Reuters expect a 28% rise in Q1
Jones says Q4 was "a mixed bag" for the company. The Macau
business was "very strong" with record-high EBITDA margins.
The offset to Macau was its results in Singapore, where it saw
a "volatile hold rate" on the VIP side. Sands' EBITDA came in
around $100 million below expectations, he said.
But Singapore is not a "driving force" of the company, he
says. He says growth is coming from Macau and other potential
developments outside of Macau, such as Japan or South Korea.
Las Vegas Sands CEO Sheldon Adelson said last week he plans to
expand into Japan if the nation OKs integrated casino resorts
like those in Las Vegas and in Macau. He says he is willing to
spend $10 billion now to start developing casinos there.
Many hurdles remain, but if legislators do vote this year to
allow casinos, Bain said, the selection process for which
operators will host the new casinos should begin next year. "LVS
is one of the few front-runners to host a casino in Japan," he
The "real story" for Las Vegas Sands is that it continues to
be a "strong grower," adds Jones.
"It will continue to drive earnings and returns to
shareholders whether in the form of buybacks or dividend growth,"
Wynn's Macau Expansion
Wynn saw its Q4 earnings climb 94% to $2.27 a share.
Wynn reported better-than expected top-line and EBITDA
results, besting analyst forecasts in both Macau and Las Vegas,
Results in Las Vegas showed growth on both the hotel and
casino segments, he added. But Macau was the growth driver, with
revenue up 24.6% to $1.12 billion. Vegas revenue rose only 2.4%
to $400 million.
Wynn is expanding in Macau, where it is building the Wynn
Palace fully integrated resort on the Cotai Strip. The $4 billion
project is set to open in 2016.
For both Wynn and Las Vegas Sands, Amobi says, "the fact that
these companies are committing more capital to that market is a
signal to their bullishness."
A Bullish Year Of The Horse
Jones is "upbeat" on the prospects for the casino group.
"We are continuing to see decent volume out of Macau," he
said. "Saving any large geo macro event, I think we should
continue to see strong gains coming from the Asian gaming
Analyst Shore is "bullish" on the long-term for Macau, which
he says will benefit from continued infrastructure improvements
such as the expansion of the Barrier Gate and a new railway.
"There's also the benefit of GDP growth and currency
appreciation," he said. "We're seeing more and more mainland
Chinese becoming wealthier, and Macau is the only place in the
mainland with legalized gambling. Macau is a gaming-oriented
market with its patrons having a much higher propensity to gamble
relative to Westerners."