Hitting high notes

Casino stocks rebound on the eurozone bailout deal and on fewer jitters about informal lending in the mainland Casino stocks rose sharply by the end of October in active trading, with renewed hope for an end to the lingering European debt problems after the eurozone’s policymakers made a breakthrough in their search for a general agreement on what to do about Greece’s huge debt burden. At the same time, investors were showing signs that their worry about the exposure of Macau’s VIP gaming sector to informal lending in the mainland is easing. Stocks of Macau casino companies rose by an average of nearly 11 percent in the month ended October 28, while the Hang Seng Index rebounded by 11.1 percent and the Hang Seng China Enterprise Index rebounded by 14.5 percent. One day before, French president Nicolas Sarkozy said Chinese president Hu Jintao had pledged to help out after a European summit in Brussels ended with the announcement of an agreement to expand the European Financial Stability Facility to €1 trillion (MOP11.3 trillion). On the domestic front, Premier Wen Jiabao said last month that his government would fine-tune its monetary policy “at a suitable time and by an appropriate degree” as mainland economic expansion moderated. That led investors to believe that the government may relax monetary policy to ensure growth, which could be expected to help Macau’s gaming industry. Of even greater benefit to casino stock prices was the gradual fading of fears that a slowdown in the mainland would lead to a squeeze on credit for VIP junkets due to informal lenders being less open-handed. After analysts and casino executives repeatedly stressed that there were no indications of liquidity problems in the Macau gaming sector, the worries started to dissipate towards the end of October. Earlier in the month fear of a slowdown caused double-digits falls in the shares of all Macau gaming companies. Stellar Galaxy The extra ingredient in the mixture that fuelled the rebound was the strong results for the third quarter posted by Galaxy Entertainment Group Ltd. (0027.HK), Sands China Ltd. (1928.HK) and Wynn Macau Ltd. (1128.HK). Galaxy Entertainment’s stock has risen by more than 90 percent this year, making it the biggest gainer among the six casino operators. The Hang Seng Index has fallen 13 percent this year. Galaxy Entertainment said its adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) for the third quarter rose to HK$1.8 billion (US$231 million) from HK$616 million a year before. It was the company’s 12th consecutive quarter of EBITDA growth. Revenue more than doubled to HK$13 billion. Galaxy Entertainment gave no net profit figure. The company’s performance was boosted by its new flagship, Galaxy Macau, which opened in May and posted EBITDA of HK$973 million for its first full quarter in operation. The casino resort will open a cineplex, to be managed by Hong Kong’s UA Cinemas, on December 15. The UA Galaxy Cinemas cineplex will occupy about 16,000 square metres of floor space, have nine 3D-capable screens and up to 1,000 seats. On the same date Galaxy Macau will also open Galaxy Square. The 2,100-square-metre plaza will have a 19-metre-high atrium that can accommodate a stage and red-carpet events, giant LED-screen walls and a broadcasting studio. Sands China’s earnings also surged in the third quarter. The casino operator’s net profit leapt by 41.6 percent from a year before to US$278.3 million. Net revenue increased by 11.1 percent to US$1.2 billion, while adjusted EBITDA rose by 18.9 percent to US$390.6 million. Las Vegas Sands Corp (LVS.NYSE), the parent of Sands China, doubled its third-quarter net profit to US$353.6 million. Wynn some Wynn Macau’s third quarter net profit jumped by 84 percent from a year before to US$209.9 million. Net revenue climbed by 41.7 percent to US$951.4 million. The company says it is near to deciding how big its Cotai resort project will be, how much it will spend on it and when it will be finished. The project has yet to be approved by the government. Wynn Macau officials say they expect to complete the financing arrangements for the project next year. Wynn Macau’s parent, Las Vegas’s Wynn Resorts Ltd (WYNN.NASDAQ) posted third-quarter net profit of US$127.1 million, compared with a loss of US$33.5 million a year before, when it repaid debt. There was more news last month about Melco Crown Entertainment Ltd.’s (MPEL.NASDAQ) intention to list on the Hong Kong Stock Exchange. The International Financing Review reported that the company was considering listing by way of introduction, instead of by selling new stock. This was because of volatile market conditions, the report said. It would mean the cancellation of a plan to sell at least US$300 million worth of new shares in Hong Kong. Listing by introduction entails the transfer of shares from another stock market. Also in the news was Stanley Ho Hung Sun’s reduction of his stake in Melco International Development Ltd. (0200.HK) to 24.28 percent from 26.79 percent in an on-exchange transaction. In another on-exchange transaction, Mr Ho’s son, Lawrence Ho, acquired a similar amount of shares, increasing his stake in the company to 60.57 percent from 59.09 percent. Melco International Development is one of the two reference shareholders in Melco Crown, with a stake of approximately one-third. By Ray Chan * Exclusive GamblingCompliance/Macau Business