Wednesday, June 1, 2011

Why are casino stocks relatively strong?

While Dow Jones Index dropped more than 2% today, casino stocks that have exposures to Macao held up quite nicely. MPEL was up 5%, LVS was up 1% while WYNN was down less than 1% . MGM, another casino operator that has much smaller shares in Macao than the other three dropped together with the rest of the market.

The source of strength was likely to have come from gaming revenue statistics released by the Gaming Inspection and Coordination Bureau of Macao. According to Wall Street Journal,

Gambling revenue in Macau rose 42% in May from a year earlier, government statistics issued Wednesday show, as the opening of a massive new casino resort last month helped revenue rise to a record high for the fourth month in a row.....................................

Gambling revenue in the Chinese territory rose to 24.31 billion patacas ($3 billion) last month, up from 17.08 billion patacas a year earlier, according to data from Macau's Gaming Inspection and Coordination Bureau. The May figure was 19% more than the last monthly record of 20.51 billion patacas set in April. In the year to May 31, Macau's gambling revenue was up 43%, following a 58% surge for the whole of last year.

Following the data, RBS analyst Philip Tulk said he will need to raise his current forecast for Macau's gambling revenue to grow 28% in 2011. CLSA analyst Huei Suen Ng noted Macau's May revenue alone was equal to almost half the house's $6.5 billion forecast for the Las Vegas Strip's gambling revenue for 2011. .......................................

Analyst Billy Ng said the strong growth was partly due to the May 15 opening of Galaxy Entertainment Group Ltd.'s new casino resort in Macau's Cotai area.

"We see Galaxy Macau driving traffic and injecting new VIP liquidity, with growth in both mass (market) and VIP for the rest of 2011," Mr. Ng wrote.

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