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Who Gives A SHIBOR?

Is the recent slump in stock prices for Macau gaming companies a buying opportunity?

Who Gives A SHIBOR?

The almost obsessive reading of China’s economic tea leaves has led to a near-term bearish view of Macau.

Thus the recent off of Macau casino stocks.

The blame was laid on a slowdown in the Chinese economy, a reversal of money flowing out of China greater than investment flowing in, and a spike in SHIBOR lending rates. SHIBOR is the Chinese equivalent of LIBOR with SH being Shanghai as opposed to L for London.

Yet, gaming revenues in Macau casinos continue to grow. They soared 21 percent in June. And most analysts believe full-year growth will be around 15 percent and maybe higher.

The big sell-off has brought longtime growth stories Wynn and Las Vegas Sands down to non-growth valuations.

And, ironically, though much of the sell-off was blamed on China, the parent companies of American Macau operators declined more steeply than their Hong Kong-listed subsidiaries, which are pure Macau plays.

That came despite the American economy and the Las Vegas Strip both strengthening, which should shore them up.

Since then, their stock prices have risen. WYNN’s forward price/earnings ratio is 18 as of this writing and LVS is at 16.

Those PEs are about where they should be given expected growth and the dividends that both companies pay.

But the stock prices might have a way to run.

Jon Oh of CLSA is emphatic about LVS.

In a piece titled “The Path To 100,” Oh said that Macau casinos could be worth $43 a share just by LVS reaching average table yields for the market, and that Singapore could be worth $28 assuming stabilized VIP volumes. In addition, sales of non-core assets can bring in $11 a share and potential new projects have an option value of $12, Oh said. 

That makes for a $104 stock price.

Further, LVS stock should be supported by its current free cash flow of $4 a share and recently announced $2 billion share repurchase, Oh said.

And Oh sees growth ahead, projecting EBITDA up 27 percent this year to $4.8 billion and reaching $5.6 billion in 2015, with Singapore alone contributing $2 billion.

So, a skittish bear might be a seller of Macau gaming stocks. A bull is more likely to thank the writers of scary headlines for a buying opportunity.

Who Is The Fairest Of Them All?

Despite all the gnashing of teeth over declining revenues in Atlantic City and all the headlines about how Pennsylvania is the new leading gaming market, an interesting fact exists:

Atlantic City is still the biggest regional gaming market in the U.S.

Here are the average monthly gaming revenues during the first five months of the year for real markets. You’ll note that Pennsylvania is not listed because it isn’t a market. It’s more than 300 miles from Pittsburgh or Erie to Philadelphia, and those cities have more in common with the industrial Midwest than with the Atlantic coast:

Atlantic City        $227 million

Chicagoland       $185

Detroit-Toledo   $134

Metro New York  $113

Philadelphia        $102

MS Gulf Coast     $91

St. Louis              $90

Kansas City         $70

Now, gaming has proliferated to the point that markets overlap and there aren’t neat and distinct boundaries anymore.

Resorts World in Queens takes patrons who once belonged to Mohegan Sun and Foxwoods in Connecticut.

Sands Bethlehem in Pennsylvania buses Asian gamblers out of New York City.

Valley Forge Casino pulls customers from the northwest edge of its territory who once went to Penn National’s Hollywood near Harrisburg, while in the heart of its territory, Valley Forge fights for Philadelphia players with Harrah’s, Parx Casino and SugarHouse.

So AC might be half the size it once was, but it still generates a nice chunk of change worth fighting over.

Of course, 12 casinos cut the otherwise substantial pie into slices smaller than they would like, and maybe too small for all to survive.

The commonly held belief is that some casinos in Atlantic City have to close, though each one responds, “Not me.”

The list of potential closers usually starts with Atlantic Club (formerly the AC Hilton) and Resorts. But suddenly both are springing to life, at least on the revenue front.

The Atlantic Club has turned around thanks to a renovation and by overtly targeting locals and low-end players.

Resorts has a genuine vibe with Margaritaville opening, new manager and part owner Mohegan Sun promoting to its regional database of players and room renovations of the older hotel tower.

Meanwhile, the question has to be asked, even if small properties like Atlantic Club close, how much does that benefit the rest of the market? Answer: not much.

Atlantic Club and Resorts combined for average win of $21.2 million a month this year through May. Even factoring in a strong summer and assuming they can grow to a combined $30 million, their closing would be of marginal help.

The big hope now is that internet gaming will generate enough revenue to be the game-changer.

Citywide revenue estimates range from $200 million to over $1 billion.

But that is a wait-and-see prospect.


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