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Bright prospects
Results season has started, with good news coming from Sands China Ltd.
Macau gaming stocks have started the year on a positive note, as investors bet on a good performance by the city’s casinos during the Lunar New Year holidays. There was a correction in the last two days of January, as the first estimates of the month’s casino gross gaming revenue fell short of investors’ expectations. Eventually, that was not the case, with January’s revenue number ending towards the higher end of analyst estimates.
This month kicks off the results season, which is expected to drive stock performance.
Morgan Stanley analyst Praveen Choudhary says in a note to investors he expects Macau’s casino industry to report annual growth of 55 percent in earnings before interest, taxes, depreciation and amortisation (EBITDA) for the fourth quarter of last year, and quarterly growth of 12 percent.
Sands China Ltd. (1928.HK) reported its fourth quarter results early this month, through its parent company, Las Vegas Sands Corp. (LVS.US). The Macau casino operator reported adjusted property EBITDA of US$430.1 million (MOP3.4 billion), 29.2 percent more than a year before. Its net profit rose by 43.8 percent to US$306.7 million.
Also early this month, Wynn Macau Ltd. announced a profit of US$239.9 million for the last quarter of 2011, up by 15 percent year-on-year. Net revenues reached US$995.5 million, a 9.1 percent year-on-year increase. Adjusted property EBITDA in the fourth quarter of 2011 was US$313.1 million, up 5.5 percent from US$296.8 million in the fourth quarter of 2010.
Mr Choudhary expects MGM China Holdings Ltd (2282.HK) and Galaxy Entertainment Group Ltd. (0027.HK) to post double-digit quarterly growth in EBITDA for the fourth quarter. MGM China Holdings Ltd. will have the best growth rate, 29 percent, giving it EBITDA of HK$1.42 billion, Morgan Stanley estimates. Its estimate for Galaxy Entertainment Group Ltd. is HK$1.97 billion, an increase of 10 percent.
Melco Crown Entertainment Ltd. (6883.HK, MPEL.US) is expected to post EBITDA of US$224 million, 7 percent less than in the third quarter but 68 percent more than a year before, according to Morgan Stanley.
SJM Holdings Ltd. (0880.HK) is forecast to post EBITDA of HK$1.77 billion, also 7 percent more than in the third quarter.
New best idea
Morgan Stanley says it now prefers companies with exposure to Cotai, namely Sands China, Galaxy Entertainment and Melco Crown. Its analysts expect slower growth for companies with casinos on the peninsula. As a result, Morgan Stanley has replaced SJM on its “Best Ideas” list with Sands China.
Late last month Sands China declared its first dividend. Wynn Macau and SJM are the only other Macau casino operators to have ever paid a dividend. Sands China told the stock exchange it expects the interim dividend of HK$0.58 per share to be paid on February 28 to shareholders on February 20.
Sands China says it “has sufficient reserves, after the payment of this interim dividend, to finance its operations and the expansion of its business, including the development of additional integrated resorts in Macau”. The company is expected to inaugurate its Sands Cotai Central project next month.
HSBC Global Research analyst Sean Monaghan says the first phase of the development is on schedule to open between March 22 and 27. The first phase will include a 9,850 square-metre casino with VIP gaming areas. When work is complete, the development will have more than 5,800 hotel rooms.
Mr Monaghan estimates that Sands Cotai Central will account for 28 percent of Sands China’s EBITDA in 2013. He also expects Sands China to be the stock that dominates this year.
Melco Crown looks for money
Melco Crown Entertainment Ltd. is looking to borrow up to US$2 billion (MOP16 billion) to pay for its Macau Studio City project in Cotai, unnamed sources have told Reuters. The company will seek a loan of US$1.25 billion and also issue bonds, one of the sources said.
The government last month stressed once more that it has yet to approve the inclusion of a casino in the Macao Studio City project. “The approval is not completed,” said the secretary for transport and public works Lau Si Io.
Mr Lau denied the existence of any “secret deal” on a casino between the government and Melco Crown, which acquired the majority stake in the project last year. Melco Crown has said several times that it is confident that it will be able to include a casino in the project.
Melco Crown is also working on big changes for City of Dreams, starting with a re-branding of the development, a source in the company told Macau Business. “The re-branding is still very secret but will go ahead this year,” the source said.
On February 5, the signature restaurant at City of Dreams, Horizons, closed for a two-month renovation. When it reopens it might offer a menu by French chef Guillaume Galliot that could come into consideration for a Michelin star. The new Horizons will feature a new entrance and private dining rooms, and a bar that will introduce guests to fine dining.
City of Dreams is also aiming to open another Chinese restaurant in July.
