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Macau's Lunar New Year Shines On Casino Stocks

7 March 2014 in Trading Ideas

Regular readers may recall that on several recent occasions we’ve remarked upon the huge lift that the Chinese island of Macau has given to the global gambling industry – and as a result, the stocks of casino operators.

Here comes that familiar refrain once again.

The Casino Gambling motif has gained 14.9% in the past month, and it has climbed 70.2% in the past 12 months. During those same respective time frames, the S&P 500 has increased 5.9%, and 24.1%.

Casino stocks are booming in part because business in Macau – which accounts for more revenue than Las Vegas for many firms – has refused to bust.

As Bloomberg reported earlier this week, casino revenue in Macau jumped 40% to an all-time record in February, due to a jump from mainland Chinese visitors during the Chinese New Year. According to the Macau Government Tourist Office, more than 770,000 visitors from the mainland visited from Jan. 31 to Feb. 6 – a 23% jump from a year earlier, Bloomberg said.1

That’s no accident – casino operators like Sands China and Galaxy Entertainment have been adding shopping malls, entertainment shows and hotel rooms to draw mainland tourists. As Standard Chartered analyst Philip Tulk told Bloomberg, “Clearly, it’s evidence that there’s still pent-up demand to play from mainland customers. Macau’s becoming a more accessible and realistic spot for visitation.”

 

And, as Bloomberg pointed out, improved rail connections, infrastructure and added hotel supply are expected to help draw more visitors to Macau.

In turn, more would-be gamblers could help companies like Las Vegas Sands and Wynn, whose stocks also comprise a 39% weight in the Casino Gambling motif. Wells Fargo analyst Cameron McKnight likes those two names because of Sands’ “superior mass-market (middle-class tourist) positioning and Wynn’s expected resurgence in the middle-class market.”2

McKnight also pointed out that the 40% jump in Macau gaming revenue last month easily surpassed the analyst’s expectations for a rise of 32% to 34%.

It’s worth noting, however, that the strong numbers from Macau happened to dovetail with some economic data points from China that weren’t quite as inspiring – and could suggest a question of how strong Macau crowds can continue to be in the future. According to the Wall Street Journal, the HSBC manufacturing purchasing managers index fell to 48.5 in February from 49.5 in January, remaining in negative territory. That reading followed a decrease in the government’s official purchasing managers index.3

The hope for Macau bulls, of course, is that a larger pool of visitors will offset any economic malaise the country may be entering.

1Vinicy Chan and Rachel Butt, “Macau Casino Revenue Jumps to Record After Lunar New Year,” Bloomberg.com, March 3, 2014, http://www.bloomberg.com/news/2014-03-03/macau-feb-casino-revenue-jumps-tk-percent-to-tk-billion.html?cmpid=yhoo.

2James DeTar, “Sands, Wynn Seen Gaining From Macau Gaming Surge,” Investors.com, March 3, 2014, http://news.investors.com/030314-691854-feb-macau-gambling-revenue-hits-high.htm?ven=yahoocp&src=aurlled&ven=yahoo.

3Richard Silk, “China Data Confirm Weakness In Manufacturing Sector,” WSJ.com, March 2, 2014.

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