How To Get Exposure To Asia's Booming Casino Market

Tony Sagami

What amazes you the most about Las Vegas?

The over-the-top casino buildings, like the Bellagio with its choreographed water fountain show or Paris with its Eiffel Tower reproduction?

The jaw-dropping shows of Cirque du Soleil and the Blue Man Group or the concerts from Elton John or Celine Dion?

The world-class restaurants run by celebrity chefs like Wolfgang Puck, Emeril Lagasse, Bobby Flay, and Joel Rubuchon?

Or maybe you just enjoy the thrill of gambling.

Whatever your reason, Las Vegas has become one of the most popular tourist destinations in the world. But it's getting out-Vegased by its Asian casino competitors.

Singapore casinos pulled in $5.1 billion in revenues in 2010, putting it a little behind Las Vegas' $5.8 billion and way behind the $23 billion that Macau pulled in, according to the American Gaming Association.

Making Moolah
In Macau

Macau, the only city in China that offers legalized gambling, saw visitors increase by 10.7% to 2.34 million in April from the same period of 2010, according to China's Statistics and Census Service.

In the first four months of 2011, 8.77 million tourists went to Macau, a 6.6% year-on-year increase. Macau is on pace to hit 26.6 million tourists this year. You can `bet' that most of them will do a little (or a lot) of gambling.

I've seen that crush of Macau tourists firsthand. When I arrived at the Hong Kong Port to catch a high-speed ferry to Macau, I was stopped in my tracks by a huge line! Even though they had high-speed ferries leaving every 15 minutes, I ended up waiting for two hours!

The 50-minute boat ride was spectacular ... dozens of sampans filled with Chinese fisherman in traditional coolie hats ... freighters with cargo containers stacked to the sky ... a dense urban jungle of huge condominium towers, many still under construction, hugging the Hong Kong shoreline.

Upon arriving in Macau, I was greeted by yet another ugly picture — more lines! Twisting snakes of people were waiting to clear customs. Heck, I've seen shorter queues at Disney World's most popular rides.

Macau's crushing popularity is because it is within a five-hour flight of 3 billion people or nearly half the world's population. To put this into perspective, Las Vegas is the same distance from only 450 million people!

Macau, by the way, has already seen its gambling revenues jump by another 40% so far this year.

Move Over Sin City
Here Comes Singapore

Singapore is getting its share of gambling tourists too. Singapore is on track to pass Las Vegas this year. Singapore's gambling industry is set to rake in $6.4 billion, which will edge out the $6.2 billion Las Vegas is expected to deliver. Yup, our own Sin City is moving to third place.

Lastly, you better believe that other Asian governments are looking at the huge tax revenues that Singapore and Macau are raking in and wishing they had their own casino sugar daddy.

The attraction is simple: Casinos bring in tourists. 11.6 million tourists passed through Singapore immigration in 2010, a 20% increase over the previous year. All those tourists spend a lot of money at Singapore shops, restaurants, and hotels.

Japan, Taiwan, Vietnam, Korea, and Spain are considering legalized gambling and may pass legislation sometime in the next 18-36 months. Las Vegas Sands is talking to all of those countries.

"We are going to develop in Europe, we are still going to develop in Asia; Asia is our first preference," said Las Vegas Sands founder Sheldon Adelson.

Clearly, the crème of the gambling crop has crossed the Pacific Ocean from Nevada to Asia.

If you wanted to include some gambling stocks in your portfolio, there are several ways for you get exposure to the booming casino business in Asia:

  • Las Vegas Sands (LVS) owns the luxurious Venetian hotel in Vegas as well as a stake in the Macau Venetian and the Marina Bay Sands casino complex in Singapore. Marina Bay Sands is a $5.5 billion resort project with a 15,000-square-meter casino, a stunning three-tower hotel with 2,500 rooms, restaurants, nightclubs, shopping, as well as one of the largest convention centers in Asia.
  • Steve Wynn (WYNN) is one of the most recognizable names in Las Vegas with the success of Wynn Las Vegas and the Encore at the Wynn. The Wynn Macau is his newest and perhaps most profitable casino yet. Wynn Macau is available on the Hong Kong Stock Exchange (1128.HK) or the U.S. over-the-counter pink sheets (WYNMF.PK).
  • MGM Resorts (MGM) is the only Macau casino that I've visited that wasn't packed with gamblers but it is also building several hotels in mainland China.
  • Melco Crown Entertainment (MPEL) is a casino that very few Americans have ever heard of but it owns several Macau casinos and its stock is traded right here in the U.S.
  • Genting Berhad (GEBHF.PK or 3182.KL), the parent company of Genting Singapore, is the third largest casino company in Asia and reported a 57% increase in revenues and a 300% increase in profits for the first quarter of 2010. Genting operates the ONLY casino in Malaysia as well as the Casino at Resorts World Sentosa in Singapore.

Genting Singapore (G13.SI or GIGNY.PK) operates the Casino at Resorts World Sentosa, a $4.5 billion entertainment complex that includes a 15,000 square meter casino, six hotels, conference center, retail shops, entertainment facilities, restaurants, as well as a Universal Studios theme park.

  • SJM Holdings (0880.HK or SJMHF.PK), owned by Chinese billionaire Stanley Ho, used to own a monopoly on the Macau casino business and despite the arrival of American competitors, is still doing a thriving gambling business with its dedicated clientele.

If you are more of an exchange traded fund investor and happy with broad exposure to the entire gaming sector, you should take a look at Market Vectors Gaming ETF (BJK).

This ETF includes many of the above casinos as well as U.S.-only casinos, like Boyd Gaming (BYD) and Pinnacle Entertainment (PNK), as well as companies that provide gaming equipment to casinos like Shuffle Master (SHFL) and slot machine-maker International Gaming Technology (IGT).

I'm not suggesting that you rush out and buy any of these casino stocks tomorrow morning. As you know, timing is everything when it comes to investing, so you should always wait for stocks to go on sale before jumping in or wait for my buy signal in Asia Stock Alert.

As always, you need to do your homework and decide whether any of the securities I talked about in this column are appropriate for your personal situation and financial goals.

Best wishes,

Tony


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Posted 06-24-2011 10:42 AM by Tony Sagami
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How To Get Exposure To Asia's Booming Casino Market - Uncommon Wisdom - Investment Strategies, Analysis & Intelligence for Seasoned Investors.