August gaming results for Macau
Prior to the opening of Friday trading in Hong Kong, the Macau Gaming Inspection and Coordination Bureau released its monthly report for August on the gambling “win” of the casinos in the SAR. Here are the fig
* 1 HKD = 1.03MOP (Unit:MOP million )
|Monthly Gross Revenue from Games of Fortune in 2011 and 2010|
|Monthly Gross Revenue||Accumulated Gross Revenue|
Source: Macau Gaming Inspection and Coordination Bureau
Interestingly, despite this unexpected good news all the major Hong Kong-listed casino companies, except China Sands, went down by more than the market (the Hang Seng was off by 1.8% overnight).
The prevailing sentiment in Hong Kong seems to be that the Macau gaming market’s gains will never be any better than this and that a slowdown to 20% growth rate or less is imminent. The reaction to today’s GICB announcement just confirms the same market reaction–selling–that a recent Deutsche Bank research report expressing the same sentiments provoked.
If extensive press reporting of the researcher’s reasoning–a falloff in Chinese buying of German luxury cars presages a general reduction in spending–are correct, her conclusion is a little loony. So the DB report probably isn’t the reason for the selling. But it apparently did voice worries that investors have had, perhaps on general principles, perhaps simply because the stocks have been such spectacular performers over the past year or two.
It is true that 2011 will be a tough act for Macau to follow. My own feeling, however, is that the SAR has at least a couple of more years of substantially above normal growth before it settles down to an expansion rate more in line with that of China’s nominal GDP. I think “settle down” would mean 10%-12% annual revenue growth for the market and a 15%-18% annual gain in aggregate profit.
Investment interest would then presumably turn to sorting out relative winners from relative losers. That may be happening now. My pick for top of the winners’ column is Wynn Macau (1128); my sense is that Hong Kong’s is SJM (0880).
Ultimately, relative earnings growth will determine who’s right and who’s wrong. For now, it seems to me that the selling of the past week or so among the Macau casino stocks already pretty well discounts the imminent maturity of the industry. In Wynn Macau’s case, I think the price suggests Hong Kong views it as an average performer–no worse, but certainly no better.