The Gaming Control Board of the state of Nevada released its gaming revenues and collections Wednesday. For the month of October 2013, Nevada’s nonrestricted gaming licenses reported a total “gaming win” decrease of 2.58% compared to October 2012. Las Vegas strip revenue declined 5.06% from the same period a year ago. Though “gaming win” has still advanced 1.52% from July through October of this fiscal year versus last year’s mark, the decline in the month of October still compares to a 7.41% increase in September and an 11.17% increase in August, signaling a marked change in the trajectory. It’s worth noting that year-over-year fluctuations should be expected (as total “gaming win” declined nearly 8% in July of this year), but any decline is not welcome news for the gaming space.
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On the other hand, the Macao market (1) continues to grow much faster than “Sin City,” as recent channel checks indicate substantial expansion in November, some reporting 20% revenue increases.
(1) Adapted from Las Vegas Sands’ 10-K: “Macao is the largest gaming market in the world and the only market in China to offer legalized casino gaming. According to Macao government statistics, annual gaming revenues reached $38.2 billion in 2012, a 13.7% increase over 2011…Macao will continue to experience meaningful growth in both gaming and non-gaming revenues and the record 28.1 million visitors Macao welcomed in 2012 will continue to increase…this growth will result from a variety of factors, including the movement of Chinese citizens to urban centers in China, the introduction of new transportation infrastructure and the coming increase in hotel room inventory. Table games are the dominant form of gaming in Asia, with baccarat being the most popular game. With the increase in the mass gaming market, (there has been) a significant increase in slot machine play, and this business (should) continue to grow in Macao.”
“More than 1 billion people are estimated to live within a three-hour flight from Macao and more than 3 billion people are estimated to live within a five-hour flight from Macao. Visitors from Hong Kong, southeast China, Taiwan and other locations in Asia can reach Macao in a relatively short period of time, using a variety of transportation methods, and visitors from more distant locations in Asia can take advantage of short travel times by air to Macao, Zhuhai, Shenzhen, Guangzhou or to Hong Kong (followed by a road, ferry or helicopter trip to Macao). In addition, numerous air carriers fly directly into Macao International Airport from many major cities in Asia. Macao draws a significant number of customers who are visitors or residents of Hong Kong. One of the major methods of transportation to Macao from Hong Kong is the jetfoil ferry service, including the ferry service, The Cotai Strip CotaiJet. Macao is also accessible from Hong Kong by helicopter. In addition, the proposed bridge linking Hong Kong, Macao and Zhuhai is expected to reduce the travel time between central Hong Kong and Macao and is expected be completed sometime between 2015 and 2016.”
Valuentum’s Take
Casino stocks with operations in Macao include Melco Crown (MPEL), Las Vegas Sands (LVS), Wynn Resorts (WYNN) and MGM Resorts (MGM). Las Vegas Sands is our favorite fundamental idea in the gaming space in part because it has the largest asset base in Macao. Its shares, however, aren’t cheap, and we’d wait for a substantial pullback in its price to consider the firm in our Best Ideas portfolio. We’re not putting new money to work in the gaming industry at this time.
Image Source: Las Vegas Sands