How to Profit from the Rise of Macau

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macau 2014 is set to be a breakout year for Macau, the Chinese gambling and tax haven that neighbors Hong Kong.

With 47 casinos, Macau's role in the gambling and tourism industry was cemented long ago. In fact, Macau became the world's largest gambling center in 2006.

Macau's rise to prominence has been swift. Macau was already one of the world's richest cities when the Portuguese colony transitioned to Chinese control in 1999.


Until late 2001, all gambling in Macau was operated by a single company and protected by a "monopoly license" issued by the Chinese government. It was in 2002, following its expiration, that the Western competition arrived and Macau started to boom.

Despite the tremendous profitability of Macau's casinos over the past several years, 2014 will be the best year ever for the industry.

The first Western casino operator arrived in Macau in 2004, when Las Vegas Sands ( LVS ) opened its first casino . Two years later the Wynn Macau opened its doors, introducing Wynn Resorts ( WYNN ) and its high-profile founder - Steve Wynn - to the Chinese market. Soon after came another Las Vegas Sands property, The Venetian, followed by a long list of additional casinos and hotels.

A short ferry ride from Hong Kong and easily accessed through its major international airport, Macau has become the chosen hot spot for Chinese gamblers. Most impressive is that in just the last eleven years, Macau's gambling industry has grown so much that it now dwarfs Las Vegas.

Many U.S. casino operators have looked to Macau as a growth opportunity. In fact, the Las Vegas casinos earned only about 15% of Macau's total gambling revenue from 2013.

But the growth in Macau is projected to continue. Estimates call for the industry to grow by 20% annually until at least 2018. By comparison, gambling revenues in Las Vegas grew by only 4.8% in 2013. The gap between Macau and Las Vegas is only growing wider.

wynn-macau

Macau isn't a new story, however. For several years now, the major casino companies setting up shop in Macau. But the real news is that 2014 will be a huge year for casino owners.

That's because no new casinos will be built in Macau in 2014. That's a big change: there has been at least one new casino opening every year since 2005.

As a result, the existing Macau casinos won't face increased competition. Additionally, the largest hotel property in Mainland China recently opened, and it's a short 10-minute drive from Macau. To put this in perspective, the hotel and theme park drew in 500,000 visitors in its first 10 days of operation.

Another boost to Macau is the strong global economy. While there are concerns about China's slowing economic growth, prosperous Chinese people continue to spend money.

Gaming stocks have been on a roll, with the Market Vectors Gaming ETF ( BJK ) up 45% in the last year. But the real opportunity for growth is specific gaming companies operating in Macau.

Shares of Melco Crown Entertainment ( MPEL ) , for example, are up 133% in the last year. The company operates multiple hot casinos in Macau and, with its geographic center in Asia, is positioned to take advantage of the high growth rates in the gaming sector.

Las Vegas Sands, which owns three properties in Macau, is also poised to take advantage of the major growth in Macau. In February, the company reported its fourth quarter 2013 earnings. Its earnings increased 32%, entirely attributable to the 56% jump in earnings from its Macau properties. The stock is up 69% over the last year.

Meanwhile, Wynn currently owns two properties in Macau with another one expected to open by 2016. Wynn's original Macau property, Wynn Macau, features 501 table games, the majority of which are in its VIP area. The second property, Encore at Wynn Macau, features only suite-style hotel rooms. Wynn has clearly positioned itself to cater to the wealthiest clientele, and it appears to be paying off. The stock is up 112% over the past year.

While these stocks have made impressive gains, the numbers out of Macau should be even more impressive in 2014. Each of these three stocks offers investors a different way to enter the space.

Melco Crown Entertainment is Asia focused, with two casino properties in Macau, the largest non-casino entertainment in the area and new properties planned for both Macau and the Filipino capitol of Manila.

Wynn is more diversified, but still largely focused on Macau these days. Of its four properties, two are in Macau and a third is on the way.

Finally, Las Vegas Sands offers a more diversified entry for investors. Of its eight casino properties, three are in Macau and three are in Las Vegas, with additional properties in Singapore and Pennsylvania.

If you're ready to place a bet on the continued growth in China's gaming sector, look no further than these three stocks.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.




This article appears in: Investing , Stocks

Referenced Stocks: LVS , WYNN , BJK , MPEL

Wyatt Investment Research

Wyatt Investment Research

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