Macau gambling to goup another 20% in 2006

Jan 10, 2006 4:19 AM

Macau’s booming economy, fueled by the introduction of tourist-attracting casinos, has grown more than 35% during the past two years and will continue to expand given the introduction of at least three new Las Vegas-styled casinos over the next two years.

In fact, one company, Globalysis of Las Vegas, has estimated that the Asian gaming market will generate $13 billion in 2006, a 20% increase over last year.

Expected to boost this year’s revenue is the September opening of Wynn Macau. Next year, there will be casino offerings from both Las Vegas Sands Corp. (LVS) and MGM MIRAGE Inc. (MGM).

Revenue increases have been so large that the government of Macau recently indicated that the Chinese enclave will not have to issue debt for some time.

"Overall the economic boom is being fueled by new investment in the gaming industry," said a report issued by analysts at Moody’s Investment Services.

"Macau enjoys an excellent fiscal position, with notable public sector surpluses over the past four years," report concluded.

And the economic benefits enjoyed by Macau aren’t being ignored by other Asian areas. Singapore has lifted its ban on casino gambling and plans to issue two gaming licenses later this year.

On Friday, Malaysia joined the list of Asian countries that are looking at the economics of adding gaming to their tourist attractions. An official in Kuala Lumpur said the country is looking into the possibility of opening a casino on Malaysia’s Penang Island, known as the "Pearl of the Orient." However, he noted, that there would be strong opposition to gambling from the leaders of the country’s Muslim majority.

Lawrence Klatzkin, respected gaming analyst for Jefferies & Company, joined the list of Macau boosters last week by raising his price target for the shares of Las Vegas Sands Corp.

Klatzkin wrote in a research paper that he had factored in a better value of the casino company’s Macau assets, primarily 1,100 planned luxury vacation suites and 1.6 million square feet of mall space under construction.

Shares of LVS has since moved up from $38.68 to $42.80 each.

Fluctuating price

Wall Street seemed confused last week following the announcement by Boyd Gaming Corp. (BYD) that the company planned a $4 billion development on the Las Vegas Strip, a project that was twice the size that many analysts expected.

Following the announcement the price of Boyd Gaming shares fell $2.31 to $46.09, as investors attempted to digest the news.

A day later, however, buyers moved in to push the share price up to $47.90. On Monday, sellers took over once again, pushing the share price down to $46.28, a drop of $1.62 for the day. Total number of shares traded exceeded 1.4 million shares, nearly twice the number traded during an average day.

Fiscal report

Nevada’s 268 hotel/casinos earned a record $1.8 billion on more than $21 billion of revenue during the fiscal year 2005 that ended on June 31, according to a report issued by the Nevada Gaming Control Board last week.

The earnings represented an increase of 35% over the $1.33 billion earnings before federal taxes in the previous year. It also topped the previous record of $1.36 billion earnings during fiscal 1996.

Earning the bulk of the money, the report said, were the Las Vegas Strip properties that had revenues of $12.9 billion and income of $1.15 billion.

Court victory

A ruling by the federal appeals court has paved the way for a casino to be owned by the Pokagon Band of Potawatomi Indians and to be built and operated by Lakes Entertainment Inc. (LACO).

The unanimous ruling of a three-judge panel clears the way for the Bureau of Indian Affairs (BIA) to take a 675-acres parcel of land in New Buffalo Township, Michigan, into trust for the tribe. The site, near the Indiana border, will be the home of the Four Winds Casino Resort project.

Opposing the casino was a group called the Taxpayers of Michigan Against Casinos. Although the opponents have the right to take their appeal to the U.S. Supreme Court, observers felt that the effort would be futile in light of the unanimous federal appeals court decision.

Lyle Berman, chairman and CEO of Lakes Entertainment, noted that "this lawsuit has taken years to resolve and has delayed the Pokagon Band’s goal of becoming self-sufficient."

Gaming views

Analysts at the firm of Morgan Joseph began covering the fiscal affairs of some of the smaller gaming companies whose shares are traded on the major exchanges. And most recommendations were positive.

Among the companies whose shares were listed with "buy" ratings were Isle of Capri Casinos Inc. (ISLE), Pinnacle Entertainment Inc. (PNK), Riviera Holdings Corp. (RIV), and Ameristar Casinos Inc. (ASCA) while shares in Aztar Corp. (AZR) were listed as "hold."

Also of interest were the ratings of gaming companies announced by the analysts at Matrix Research. They upgraded the shares of Boyd Gaming Corp. (BYD) from "hold" to "buy" but initiated the coverage of the shares of Alliance Gaming Corp. (AGI) with a rating of "strong sell."

THE INSIDER: MGM MIRAGE Inc. (MGM) has secured a $700 million commitment for the financing of its Macau hotel/casino. The company added that it had added a number of enhancements to the project that is expected to be completed in the second half of 2007.

A task force has recommended that the New Mexico State Fair stay where it is rather than be moved to another location. A move, they said, would cost $300 million while upgrades to the existing facility could be accomplished for $190 million.

Boyd Gaming Corp. (BYD) announced that its board has declared a cash dividend of $0.125 per share to be paid on March 1 to shareholders of record on Feb. 10.

Now that entrepreneur Don Barden has acquired the adjoining riverboat casino to his Majestic Star in Gary, Ind., from the Trump organization, he plans to begin reducing the work force as an "economy of scale."

Maine Gov. John Baldacci has vetoed a bill that would have permitted an Indian tribe to build a racino in Washington County.

Despite the devastation to its casinos caused by Hurricane Katrina, Mississippi likely will remain the country’s third largest gaming state behind Nevada and New Jersey.