The Macau gambling market is booming

News services are reporting that gambling revenues in Macau were up 69% year on year in February, following a 63% year on year gain in January.  January, a record high for Macau, was up by 24% month on month.  February, with 10% fewer days than January, was down only 4% month on month–implying a slight apples-to-apples gain.  Even noting that the yearly comparisons are being achieved against weak 2009 figures, these are heady numbers.

Wynn Macau is doing well, too

At the moment, we don’t have as clear a picture of 1128 as one might like.  This is partly because Hong Kong companies report on a semi-annual basis, using slightly different accounting conventions than US GAAP.  We can get quarterly net income information for 1128 from WYNN’s income statement, thorough the minority interest line (see a note at the end of this post for an explanation).  But we only have that data from the IPO date in early October.

In addition, the first half of 2009 was depressed by the effects of the financial crisis; the latter part of 2008 suffered from restrictions from Beijing on travel visas from elsewhere on the mainland to the SAR.

What we do know about 1128 is this.   The company made an operating loss as it started up in 2006, made a substantial operating profit in 2007, followed by an increase of 62% in 2008.

Operating profit was down by 23% in the first half of 2009, on a fall in casino revenues of 17%.  Business rebounded sharply in the second half, with full-year operating profit up by about 6%, on a full-year fall in revenues of 3.8%.

Profits are split almost 50/50 between table games and slot machines, with a slight edge to the former.

In 4Q2009, Wynn Macau had net income of US$67 million.  If we did an incredibly simplistic thing and just multiplied that number by four to get an annual figure, and said that will be our profit forecast for 2010, 1128 would be trading on about 18x earnings.  True, this is not much better than nothing, but it’s a starting point.  It also tells us two things:  we need to know about the seasonality of revenues, if there is any, in Macau, in order to judge how crazy extrapolating from the last quarter might be.  Also, if we can make a case that earnings will be able to grow from this point on, 18x may not be an unreasonably high price.

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