Economy

Macao gets a new $1.9b casino

By Kelvin Wong (China Daily)
Updated: 2011-05-16 13:43

HONG KONG - Galaxy Entertainment Group Ltd, part-owned by Permira Advisers LLP, opened its HK$14.9 billion ($1.9 billion) casino resort in Macao on Sunday after an almost two-year delay because of the credit crisis.

The 450-table, 2,200-room Galaxy Macao may help Hong Kong billionaire Lui Che-woo's company reduce its reliance on high-stakes gamblers, said Donald Cheng, a Hong Kong-based analyst at Haitong Securities Ltd. Galaxy's StarWorld casino made about 90 percent of first-quarter sales from gamblers betting as much as $250,000 a hand.

"It will help Galaxy diversify its business," said Cheng, who recommends buying the stock. "Being the only new casino in the city this year, when revenue is undergoing a strong and healthy period of growth, will also bring more people there."

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Casino gambling revenue in Macao will probably grow 35 percent to about $32 billion this year, according to estimates by CLSA Asia Pacific Markets. Galaxy has almost quadrupled in market value over the past year, Wynn Macao Ltd has more than doubled and Sands China Ltd climbed 87 percent as gambling has surged in the world's biggest casino hub.

The new venue will be "a strong catalyst for market growth" and will help boost revenue in the so-called mass-market gambling segment, which is more profitable, Aaron Fischer and Huei Suen Ng, Hong Kong-based analysts for CLSA Asia-Pacific Markets, said in a note to clients.

Galaxy Macao is on the isthmus of reclaimed land known as the Cotai Strip, where billionaire Sheldon Adelson, Las Vegas Sands Corp's chairman and chief executive officer, has said he planned to recreate the Las Vegas Strip. Sands' Venetian Macao, the world's biggest casino by floor area, is on the Cotai Strip, with Melco Crown Entertainment Ltd's City of Dreams across the road from it.

Gambling revenue in Macao soared 58 percent last year to 188.3 billion patacas ($23.5 billion), about four times that of the Las Vegas Strip. Galaxy's Hong Kong-listed shares gained 174 percent in the period and more than tripled in 2009.

Macao's casino gambling revenue grew 43 percent to 58.5 billion patacas in the three months ending March as visitors from the Chinese mainland placed more bets on baccarat and other card games. Revenue from high-stakes or VIP gamblers was 42.6 billion patacas, accounting for 73 percent of total first-quarter casino gambling revenue, up from 70 percent in the same period in 2010.

"We're very excited about the infrastructure development on the mainland which will make Macao more accessible to the burgeoning middle class of China," Galaxy Chief Financial Officer Robert Drake said. "The Macao market is projected to grow 15 to 20 percent this year and, with the development on the mainland and within Macao, we are quite confident that we can sustain that growth."

Galaxy shares rose 3 percent to HK$13.94 on May 13. The stock has surged 58 percent this year, compared with the 25 percent climb for Adelson's Sands China. Wynn Macao has gained 50 percent while billionaire Stanley Ho's SJM Holdings Ltd, Macao's biggest casino operator, has advanced 45 percent.

Galaxy Macao, the biggest casino to be completed in the city since Melco Crown's City of Dreams in June 2009, is aimed at middle-class Chinese gamblers and may boost the company's revenue at least 20 percent this year, Francis Lui, son of Lui Che-woo and the company's deputy chairman, said in March.

"Given a strong execution of Galaxy Macao, we expect a strong turnaround of the company's financial position over the next 12 to 18 months," UBS analysts Grant Chum and Gary Ngan wrote in an April 20 report. The analysts expect earnings per share to double to HK$1.03 in 2012 from 2011.

Galaxy Macao was originally scheduled to open in the third quarter of 2009. Galaxy may post record earnings in the first half on increased revenue from high-stake gamblers, Drake said in an April 20 interview, after the company reported earnings before interest, taxes, depreciation and amortization jumped 71 percent to a record HK$712 million in the first quarter.

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