2013 Gaming in Macau, China – MGM receives government approval for new casino

Analyst Commentary, Miller Chu: MGM China Holding Ltd (HKSE: 2282) announced that the company has received formal approval from the Macau government to build its second casino in the Cotai area of Macau. The new five-star hotel casino project, with a budget of US$2.5 billion, has a construction timeline of 3 years. According to the Wall Street Journal, the property will have approximately 1,600 rooms, 500 gambling tables, and 2,500 slot machines.

The Cotai area is a new development focus in Macau. All 6 licensed casino operators in Macau have plans to expand or build new casinos in the Cotai area, which has raised over-supply concerns from investors. There are 6 planned projects in the pipeline as listed below including MGM’s coati project.

  1.  MGM Cotai
  2. Wynn Cotai
  3. Sands China – The Parisian
  4. Galaxy Macau Phase 2
  5. SJM Cotai
  6. MPEL – Studio City

Despite the number of projects in the pipeline, we estimate that the overall impact on individual operator’s profitability is positive based on two factors: 1. Strong growth in both mass-market gaming and VIP gaming revenues; and 2. Cap on the number of gaming tables.

1. Gaming revenues

We believe that gaming revenues from both mass-market and VIP will continue to experience double-digit growth, outpacing the growth of gaming tables. Gross gaming revenues (GGR) in Macau have grown by 29.1% CAGR from 2002 to 2012E, making the gaming industry approximately six times the size of Las Vegas. For VIP gaming revenues, we believe the growth will be around 12% to 15% given the improving economic picture in China as evidenced by the improvement in China’s manufacturing PMI and real estate prices over the past few months. For mass-market gaming revenues, we are expecting a 20% growth driven by increases in visitors and visitor spending. Exhibit 1 below shows the total and year-on-year growth rate of GGR. 

GGR Macau

2. Capping growth in gaming tables

In addition, Macau’s gaming regulatory body Gaming Inspection and Coordination Bureau (DICJ) has plans to restrict the growth of gaming tables to less than 3% per annum starting in 2013 through 2023. We estimate based on the latest gaming table figures that new tables over the next 10 years will be approximately 1,900 to 2,100 tables. We expect that the majority of these tables will be in operation between 2013 and 2018 because most of the new projects are expected to be completed in that period.

We believe the gaming industry and its operators will continue to experience healthy growths supported by favourable macro environment in China. The increase in gaming table supply will be offset by stronger demand growth.

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