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Best of Howard Stutz

Gaming Guru

Howard Stutz

Macau gaming market still red hot

28 November 2011

MACAU -- Any rumors that Macau's gaming market was slowing were put to rest this week.

The government's secretary for the economy and finance projected the Chinese gaming enclave could provide the special administrative region roughly $10.6 billion in taxes in 2012.

If the figure holds, it would exceed what the entire Nevada casino industry collected in just gaming revenues alone during 2010. The calendar year gaming revenues were $10.4 billion. Fiscal year 2010 gaming taxes collected by Nevada were $631 million.

However, analysts believe the Macau estimates for 2012 could be viewed as conservative.

Several Wall Street researchers who visited Macau recently said local casino operators and government officials rarely go out on a limb with growth projections.

"We detected a whiff of caution during our trip given the state of the global economy, particularly in Europe, and the potential for slowing Chinese gross domestic product growth," Credit Suisse gaming analyst Joel Simkins told investors. "We believe business in Macau largely remains on trend."

In 2010, Macau produced $23.5 billion in gaming revenues, more than five times the total on the Strip.

Through October, gaming revenues from Macau's 34 casinos have increased 45 percent over the same 10 months of 2010.

"We did not uncover any earth-shattering evidence of a slowdown in Macau," Janney Montgomery Scott gaming analyst Brian McGill wrote in a research note. "We do find it disconcerting that it seems virtually everyone is on the same side of the fence. The argument seems to center around the fact that Macau did so well during a period of fiscal tightening in China, just think of the potential when China reverses to loosen monetary policy."

The Macau government based its 2012 tax projections on the region's gaming market producing an average of 240 billion patacas, or $29.9 billion in gaming revenues. The figures take into account the opening of Sands Cotai Central, a Las Vegas Sands Corp. development that includes multiple hotel-casinos and 5,800 rooms.

The opening of Sands Cotai Central could be Macau's last casino opening until 2015.

"In our view, growth at or exceeding 20 percent in 2012 is not unreasonable," Simkins said.

Three Nevada-based companies are licensed to operate in Macau.

Las Vegas Sands operates three resorts in Macau -- The Venetian Macao Resort-Hotel, Sands Macao and the Four Seasons Macau. Wynn Resorts Ltd. operates Wynn Macau and Encore. MGM Resorts International runs the MGM Grand Macau.

Wynn Resorts and MGM Resorts both plan to build hotel-casinos on Macau's Cotai Strip region.

JP Morgan gaming analyst Joe Greff said management teams in Macau told him the market showed no signs of slowing trends or cracks in demand, despite recent negative headlines out of mainland China.

"The theme was relatively consistent across all of our meetings," Greff said. "Gross gaming revenue growth continues to remain robust driven by strength in both the mass market and VIP gaming segments."

McGill said the only negative issue on the horizon was a potential smoking ban in 2013. Many Macau casinos have nonsmoking areas, but they were the least busy locations on the gaming floors.

"We came away confident in the long-term outlook for Macau," McGill said. "However, our view is that with the market at $33 billion and significant global economic uncertainty, it could be a more volatile ride higher than many expect right now."

Most analysts favor Las Vegas Sands because of its additional operations in Singapore. The company's Marina Bay Sands is one of just two casinos in the island nation.

"We were more positive about Singapore as the market is still in its infancy, whereas Macau is slightly more advanced," Simkins said.

Other areas of Asia continue to pop up for casino development potential, including Vietnam and Japan. MGM Resorts and Pinnacle Entertainment are involved in a resort project in Vietnam.

Greff said Las Vegas Sands officials believe potential legislation to legalize casinos in Japan could move forward by year's end.

"At this point, we believe Japan gaming is a matter of when and not if," Greff said. "Las Vegas Sands will be a front-runner for one of the licenses given its proven model in Singapore and Macau, as well as its solid balance sheet."
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