Gaming stocks had a tough November as the eurozone debt crisis flared and fears of a mainland economic slowdown persisted All Macau gaming stocks underperformed the market last month as uncertainty in the West flared, fuelled by the eurozone debt crisis. Global economic problems continued to chip away at investor confidence, along with increasingly uncertain economic conditions in the mainland, which some fear may dampen mainland VIP gambler’s enthusiasm for Macau’s baccarat tables. There has been no sign that those fears are well founded. “Everyone is looking at the VIP market in particular. We haven’t seen any signs of slowing,” said Galaxy Entertainment Group Ltd.’s (0027.HK) chief financial officer, Robert Drake. “There is plenty of liquidity in the market and visitation remains strong,” he told last month’s Reuters China Investment Summit. A group of JP Morgan analysts who visited Macau last month said casino management they had met were “seeing no signs of slowing trends or cracks in demand, despite the recent negative headlines out of [the] mainland”. One of the few positive reports about gaming stocks last month was an announcement by Wynn Macau Ltd. (1128.HK) that it would declare a special dividend of HK$1.20 (US$0.15) a share. This is expected to be paid on December 19 and is the second special dividend from the casino operator, which declared a special dividend of HK$0.76 a share in November last year. Apart from Wynn Macau, SJM Holdings Ltd. (0880.HK) is the only Macau casino operator to have ever paid a dividend. Wynn Macau told the Hong Kong Stock Exchange that its dividend is expected to use up more than 70 percent of its cash-in–hand. Wynn Macau had HK$8.6 billion in reserve at the end of the quarter and its debt stood at HK$4 billion. Goldman Sachs has lowered its target price for Wynn Macau to HK$20.20 from HK$20.60 and is keeping its “sell” rating as the special dividend could be a way to give Wynn Macau’s parent cash to fund its own dividend, and Goldman Sachs remains concerned about the decrease in its market share. Wynn Macau stock lost 15 percent over the month to November 25. Melco leads losses NASDAQ-listed Melco Crown Entertainment Ltd (MPEL.NASDAQ) was the biggest loser of the month. Its shares fell by almost one-third over the month to November 25. The casino operator has set December 7 for the dual listing of its shares by introduction – in other words, by listing shares already issued, instead of issuing new ones – on the main board of the Hong Kong Stock Exchange. Shares in stock code 6883 are to be traded in board lots of 300. At press time, the listing had not yet won the final approval of the stock exchange and other relevant authorities. Credit Suisse (Hong Kong) Ltd. and Deutsche Bank AG, Hong Kong Branch, are the joint sponsors of the dual primary listing. Melco Crown co-chairman and chief executive officer Lawrence Ho said the listing would “not only put us on a par with our competitors but will also provide our existing shareholders with enhanced liquidity and enable local and Asian investors to directly access investment opportunities in our company, thus broadening our investor base”. He added that the company did not “intend to carry out any equity offering” on account of volatility in the market. Melco Crown was originally expected to raise between US$400 million (MOP3.2 billion) and US$600 million. Mr Ho said the company’s Studio City project is making progress. “We are nearing the final stages of our design plans, while working closely with the Macau government to complete the necessary approval process. We also continue to evaluate financing plans in relation to this project, including a bank loan and other debt financing.” Meanwhile, the company also announced that the shareholders’ loans initially provided in 2006 by wholly-owned subsidiaries of the company’s major shareholders, Hong Kong-based Melco International Development Ltd. and Australian Crown Ltd., have been converted into ordinary shares. Based on the conversion price, the transaction would dilute the value of shares held by existing shareholders by about 0.80 percent a share. Upon completion of the conversion, Melco and Crown will maintain their interests in the company in equal proportions, at 33.65 percent each. Melco Crown also announced that its third-quarter net profit rose to a record US$113.3 million this year from US$15.8 million a year before. Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) were a record US$240.3 million, rising 76 percent. That net profit was a record was due mainly to “ongoing improvements in gaming and non-gaming operations across all operating segments, particularly at City of Dreams”, the company said. Centre adds gravity At MGM China Holdings Ltd. (2282.HK) third-quarter net profit was US$36.9 million, reversing a loss of US$20.2 million a year before, its parent company, MGM Resorts International announced. MGM China’s adjusted EBITDA were US$139.3 million, rising 66.2 percent. MGM China says it has finished designing its Cotai development, which will have about 1,600 rooms, 500 gaming tables, 2,500 slot machines and several restaurants. The government has yet to grant MGM China the land to build it on but the company says it expected news on the matter in the next few months. JP Morgan says it believes Cotai is set to become the new centre of Macau’s gaming industry, benefiting in particular Sands China Ltd. (1928.HK). “Following the opening of [parcels] five and six, we believe the centre of gravity in Macau will continue to shift to the Cotai Strip, given the broader gaming and non-gaming offerings,” JP Morgan said in a note to clients. The development on parcels five and six will be called Sands Cotai Central and its opening is likely to benefit its sister property, the Venetian Macao, more than Galaxy Macau, JP Morgan predicts, as it is a much shorter walk to get there and there are plans to open a footbridge connecting Sands Cotai Central to the Four Seasons in 2013. Even so, Galaxy Macau’s owner, Galaxy Entertainment, aims to outperform its competitors next year. Mr Drake says the casino operator wants to beat the industry’s average growth rate of 15 to 20 percent. The prospect of good earnings in Macau is one of the reasons given by Moody’s Investors Service for raising its credit ratings for three United States casino operators with subsidiaries in the city. Moody’s raised its ratings for Las Vegas Sands Corp. (LVS.NYSE) and Wynn Resorts Ltd. (WYNN.NASDAQ) to Ba2, two levels below investment grade. Moody’s lifted its rating for MGM Resorts to B2, five notches below investment grade. By Ray Chan
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