Inside Asian Gaming

32 I f Las Vegas Sands Corp’s unofficial Macau motto is:“Build It and They Will Come”, then Shun Tak Holdings’ motto should be: “Build It andWe Will Take Them There”. Shun Tak, the Hong Kong-listed shipping and property business, was responsible for transporting 72% of the 6.7 million visitors arriv- ing in Macau by high-speed ferry last year, with services from Hong Kong, Shenzhen and Guangzhou. Those 4.85 million passengers rep- resented a year on year increase of 18% compared to 2005. At present, Shun Tak’s ferry business accounts for most of the company’s revenues, but there are storms ahead in this sector, with jumpy fuel prices, competition from a new operator and challenges from road transport—especially if the‘super bridge’connecting Hong Kong-Zhuhai-Macau is built by 2012 as planned. Steadily—and without all the razzmatazz associated with the new American gaming operators in Macau—Hong Kong-listed STH has been repositioning itself as the most diversified Macau play on the market.Macau investments launched or planned by the company between now and 2013 include grade A apartments and shopping malls, a low-cost airline, a new luxury hotel managed by Mandarin Oriental and what could in the long term be the most significant de- velopment—two casinos operated under licences from Stanley Ho’s gaming company SJM, one of them near the future City of Dreams being developed by Melco PBL Entertainment on Cotai. As a result, there’s consensus among a significant number of Hong Kong-based investment analysts that Shun Tak is currently undervalued, and the company’s stock has been recommended as a ‘buy’ in research papers issued by Morgan Stanley, JP Morgan, UBS and Nomura. A recent report from JP Morgan states:“As the only conglomer- ate play focusing on Macau, we found Shun Tak’s share price un- derperformance unjustified given that Macau is one of the fastest growing economies in the world, outpacing not only Hong Kong but also mainland China. In 2006, Macau GDP rose 16.6% (versus Hong Kong’s 6.8%).” It continues:“Median wages rose 25% (versus 0% in Hong Kong). We believe the transformation of Macau has just started and strong economic growth should continue for the next three to five years. With outstanding assets in property, transportation and gaming in Macau, Shun Tak should be able to take advantage of this promising growth opportunity. We believe the market has underappreciated the potential.” Benefits of change The structural changes in STH’s business are already feeding through to the balance sheet. In financial year 2006, Shun Tak posted joint venture-related operating profit of HK$383 million (HK$328 million of it booked to sales at the property development Nova City at Taipa, in which STH has a 25% share). This was up 446% year-on-year. The contri- bution helped boost net profits to HK$664 million in the financial The Shun Tak Shuffle Macau’s leading ferry operator is placing its bets in other sectors