China ties make Macau good bet to beat Vegas
By Sui-Lee Wee and Deena Beasley - Analysis
HONG KONG/LOS ANGELES (Reuters) - The world economy may be slumping, but don't tell that to Macau -- the former Portuguese colony which is set to trump Las Vegas heading out of the worst global downturn since the Great Depression.
In the smoke-filled gambling halls of Macau's MGM Mirage casino, hundreds of Chinese gamblers were crammed around tables flipping cards, playing roulette and rolling dice on a recent day, seemingly unaffected by the slowdown.
The ace up the sleeve of Macau, the world's biggest gambling market, is this steady influx of risk-loving Chinese flocking to the only place in China where casinos are legal. Las Vegas, on the other hand, is saddled with a stagnant U.S. economy and glut of new casinos preparing to enter the market.
"We've seen better-than-expected performance in the overall gaming market of Macau," said Credit Suisse analyst Gabriel Chan. "Vegas is still suffering and will take a longer time to recover, but in Macau, we are beginning to see the light at the end of the tunnel."
Macau, a special administrative region that is now under Chinese rule, will be more resilient than Las Vegas thanks to its proximity to China, which is propping up its economy with a massive 4 trillion yuan ($586 billion) stimulus package to offset a big drop in exports, analysts said.
Investors are also betting that a new Macau chief executive who takes office on July 26 will convince Beijing to relax visa restrictions on mainland tourists. Curbs were imposed last October amid concerns about corruption and problem-gambling.
Executives from Macau's top gaming companies have been cautiously optimistic to outright bullish on their prospects in recent interviews with Reuters, citing recent gains in Chinese tourist numbers.
Mainland Chinese accounted for 51 percent of Macau's visitors in 2008, according to Macau's Statistics and Census Service.
ON A ROLL
The upbeat outlook has put Macau casino operators on a roll, making them some of the top-performing stocks in Hong Kong. Shares of Melco International Development have more than doubled in the past three months, Galaxy Entertainment has soared 80 percent and SJM Holdings has gained 64 percent.
Shares of their U.S. peers have also rallied, but more on relief that the companies have staved off bankruptcy concerns. In the past three months, MGM Mirage has jumped 81 percent, Las Vegas Sands has nearly quadrupled, while Wynn Resorts has risen 44 percent.
On a 2009 enterprise value to earnings before interest, tax, depreciation and amortization ratio (EV/EBITDA), Wynn now trades at around 15.5 times, versus 7.4 times for Galaxy and about 1.4 times for MGM, according to Macquarie Research.
Both gambling centers have reported year-on-year revenue declines in recent months, but Macau has fared slightly better with first-quarter revenues down 12.6 percent year-on-year compared with a 16.6 percent drop for the Las Vegas Strip.
For a graphic on gaming revenues, click:
