25 May 2019
Sands China has the advantage of scale to capture the mainland mass market
Sands China has the advantage of scale to capture the mainland mass market

INTERVIEW: Sands China, Galaxy top picks among gaming stocks

Sands China Ltd. (01928.HK) and Galaxy Entertainment Group Ltd. (00027.HK) are the top investment choices among the six Macau gaming operators due to their large scale and strong service culture, according to industry watchers.

“If I have to select two, that would be Sands and Galaxy,” Grant Govertsen, managing partner at Macau-based Union Gaming Research, told the Hong Kong Economic Journal’s EJ Insight. “I think Sands is the preferred one because they have a bigger supply of hotel rooms, gaming tables and slot machines.” 

Size is a crucial element because the gaming industry’s success will rely on the ability to capture the mainland mass market, Govertsen said.

Andrew Scott, chief executive of World Gaming Magazine Ltd., also picked Galaxy and Sands China as his top choices.

“Galaxy is my favorite. They have a very strong service culture. Baccarat is a very homogenous product, and at the end of the day, baccarat is the thing that drives Macau. It’s how you differentiate yourself as a business to get the customers to come to you instead of somewhere else. You do that by offering great service,” Scott said.

Shares of Sands China have risen nearly 80 percent this year to HK$61.00 (US$7.87) as of Tuesday from the beginning of this year, while Galaxy has doubled to HK$62.30, Bloomberg data showed.

SJM Holdings Ltd. (00880.HK) has seen its stock price go up about 40 percent to HK$25.30, while Wynn Macau Ltd. (01128.HK) has climbed nearly 50 percent to HK$31.25.

Macau’s casino revenue rose 21.3 percent to 30.18 billion patacas (US$3.78 billion) in November from a year earlier, according to the Gaming Inspection and Coordination Bureau. For the 11 months to November, revenue climbed 18.6 percent to 327.29 billion patacas from the same period in 2012.

Gaming revenue rose 13.5 percent to 304.14 billion patacas in 2012 from the previous year, which is six times what Las Vegas raked in for the period. Revenue has slowed down to single-digit growth in the first two months of this year due to the central government’s anti-graft campaign, but has regained momentum and recorded double-digit growth for all other months in the year.

Thriving industry

Govertsen is certain that Macau’s gaming industry will continue to thrive under Beijing’s blessing as the central government is keen to make the territory an even greater success.

“Beijing would rather keep the revenues in Macau than lose them to other countries. This could be accomplished by certain policy initiatives like making visa access [of mainlanders] to Macau even easier,” he said.

Allowing the gaming sector to thrive in Macau will also demonstrate to the world that the “one country, two systems” policy is a success, Govertsen said.

Many other Asian countries like Japan, South Korea, the Philippines, Vietnam are either expanding or considering expanding their gaming sector. Legal gaming revenue in Asia is estimated at US$60 billion, and the amount will at least double in the next 10 to 15 years, he said.

Govertsen said although most of these countries hope to reel in China’s high rollers, Macau is unlikely to face stiff regional competition.

“If they bypass Macau to get to Philippines, there are perceptions that it’s unsafe, unclean, uncomfortable, they don’t speak the same language and don’t eat the same food, and, by the way, they have only one or two casinos so if they are having bad luck they don’t really have many other choices,” the industry analyst said.

He also believes Japan’s future casinos will mainly tap the local population, especially the elderly who keep a lot of savings in cash.

“Japan will instantly become the second largest gaming market in the world behind Macau, but it doesn’t necessarily mean they are competitors. I think Japan will be wildly successful because of the Japanese people, not Chinese.”

Non-gaming segment

Macau has more than 30 casinos under six gaming concessionaires, all of which are expanding their footprints on the Cotai strip.

Some observers say that the Macau government should require gaming operators to develop non-gaming facilities in their Cotai projects to have their licenses renewed in 2020 in a bid to diversify the economy.

In Macau, well over 90 percent of the casinos’ revenue is generated from the gaming segment. By comparison, only 40 percent of the revenue in Las Vegas is from gaming while the rest is from non-gaming services.

But Govertsen said the ratio is not likely to change much in Macau in the coming years.

“The problem we’re facing in Macau is the base of gaming revenue is so big that it almost doesn’t matter how fast non-gaming grows, it’s always going to be a very small part of the pie,” he said.

– Contact the reporter at [email protected]



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