Report says there is "uncertainty" in Macau

14 June 2011

MACAU -- Macau's lucrative gaming concessions expire in the next decade. That's no revelation to the Las Vegas-based resort operators in the Chinese casino enclave.

What may have shaken up investors, however, was a report Monday by a Hong Kong newspaper, alluding to the 2020 to 2022 expiration dates and "uncertainty awaiting companies who are still considering deploying capital into Macau."

Hong Kong-based Macquarie Securities gaming analyst Gary Pinge said Monday the share prices of companies operating in Macau had a "volatile" reaction on Asian stock market to the report in the South China Morning Post.

However, Pinge said he didn't believe sweeping change is on the horizon.

"We are not saying that the existing concessionaires are at risk of losing their concessions," Pinge said in a research note.

Three Nevada-based casinos operators -- Las Vegas Sands Corp., Wynn Resorts Ltd., and MGM Resorts International -- have casinos in Macau. The companies also have varying degrees of expansion plans for the region.

Las Vegas Sands Corp. spokesman Ron Reese said Monday the company was well aware when it was awarded its gaming concession that the license came with an expiration date. The company, which operates three resorts in Macau and has several other projects in various stages of construction, plans to seek a renewal of the concession.

Las Vegas Sands draws roughly 60 percent of the company's quarterly revenues from Macau. Reese said it was unclear what the renewal process will entail and when it would take place. He wasn't sure what prompted the media report in Hong Kong.

Pinge believes the Macau government will continue efforts to diversify the region's economy, which has become the world's richest gaming revenue market with 34 large and small casinos producing $23.5 billion in 2010. In May, Macau casinos collected a one-month record $3 billion in gaming revenues.

"We do think that the government will likely try to lower excess returns or work toward the strategic imperatives of its five-year plan," Pinge said.

In the past, the Macau government has undertaken steps to slow casino growth, such as restricting the number of visas for residents of Mainland Chinese provinces who wished to travel into Macau, capping the number of table games a casino can offer, and placing constraints on hiring foreign construction workers.

Pinge warned investors that discussions on new concession terms might have already begun with casino operators looking to expand on parcels along Macau's Cotai Strip region. Construction of new resorts usually has a four-to-five year lead time.

"Concession terms that are eight to 10 years out from their end may seem like a lifetime away for some investors," Pinge said. "However, with ... the political uncertainty shown by Macau over the last two years and investors already pricing in blue sky scenarios from these project openings, we think that it is important for investors to also take a view on concession renewal risk in Macau."

Wall Street isn't shying away from Macau.

In a research note to investors Monday, Credit Suisse gaming analyst Joel Simkins said a recent decline in Las Vegas Sands' share price presents a buying opportunity. He said the company's The Venetian Macao Resort-Hotel and Sands Macao would continue to flourish in a market that is expected to grow gaming revenues 40 percent this year.

Simkins said he didn't believe Las Vegas Sands' Macau properties would be hurt by last month's opening of the $1.9 billion Galaxy Macau on the Cotai Strip.

"We see little competitive impact from Galaxy Cotai beyond the typical initial ramp and expect this project will drive visitation to the market, a positive for Las Vegas Sands," Simkins said.

Shares of Sands are down 15 percent from a year ago. On Monday, shares closed at $38.78 on the New York Stock Exchange, down 3 cents, or 0.08 percent.

Related Links
Credit Suisse Gaming Vendor Information
Sands Macao Details
The Venetian Macao Resort-Hotel Details
Galaxy Macau Details
Macanese Gambling


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