Earnings soar for Macau casino operators
Wednesday, 20 April 2011
By Kate O'Keeffe
The Wall Street Journal Online
HONG KONG—Macau casino operators Wynn Macau Ltd. and Galaxy Entertainment Group Ltd. Wednesday reported first-quarter earnings were up sharply from a year earlier as revenue in the world's largest gambling market continued to soar.
Galaxy, controlled by the family of Hong Kong tycoon Lui Che Woo, reiterated its plans to open a nearly US$2 billion casino-resort May 15. But Wynn Macau Chairman Steve Wynn didn't offer any updates on the timing or budget for his company's next project in the Chinese territory, which has become a vital source of revenue for U.S.-based casino operators as business in Las Vegas remains sluggish.
Mr. Wynn said on a conference call following the earnings release of parent company Wynn Resorts Ltd. that the Macau government could grant the company the land rights to build on the site in the lucrative Cotai area "any day now"—but the timing would be up to officials.
"Things move in Macau at a speed that is comfortable for that government," he said.
Casino operators in Macau have been reminded of that over the past year as the local government has enacted new policies to slow expansion, including caps on the number of gambling tables in the territory and limits on foreign labor.
Still, with analysts expecting Macau's gambling revenue this year to be five times that of the Las Vegas Strip, operators continue to scramble to advance massive new projects there. Like Wynn Macau, mogul Stanley Ho's SJM Holdings Ltd. and MGM China Holdings Ltd. are awaiting land rights for planned casino projects in Macau's Cotai area. And Sands China Ltd. is working on a US$4 billion-plus expansion, delayed at least in part because of a lack of construction workers. Analysts have said they expect the first two phases to begin operations in mid-2012—a year behind the earlier forecast.
Wynn Macau, which listed in Hong Kong in October 2009, said its net profit for the three months ended March 31 was US$189.7 million, up 66% from the year-earlier $114.3 million, according to international financial reporting standards. Operating revenue was up 47% to $865.7 million from $590.7 million, outpacing overall gambling revenue in Macau during the period, which rose 43%.
Analysts lauded the strong numbers but some raised concerns the stock looked expensive beside its peers. "While we agree that Wynn Macau is the best proxy of Macau, we think other stocks have better upside potential given lower valuation," wrote Deutsche Bank's Karen Tang.
Praveen Choudhary of Morgan Stanley wrote, "In the absence of a Cotai project until 2015, Wynn Macau might not have a catalyst and could see market share loss with the opening of Sands China and Galaxy Cotai projects."
Galaxy said its first-quarter earnings before interest, taxes, depreciation and amortization were up 71% from a year earlier, 712 million Hong Kong dollars (US$91.56 million) from HK$417 million a year earlier, with revenue up 45% to HK$5.73 billion. The company didn't disclose its first-quarter net profit.
Neither company recommended a dividend.