Take A Gamble On Macau

It is an incontrovertible fact that the Chinese love to gamble. It is clear from surging economic growth that the Chinese are becoming a wealthier population, perhaps not if you are a hapless rural peasant, but certainly if you are connected to the big end of town.

Consider now that the island of Macau – once a Portuguese colony, handed back to China in 1999 – is located within 90 minutes drive for a population of 130 million mainlanders, and within a three hour flight for one billion. It is also one hour away by ferry from Hong Kong.

The Chinese government is in the process of relaxing travel restrictions for mainland Chinese. In 2004, Macau received 16.7 million visitors of whom 60% were from mainland China. Overall, Macau received 40% more visitors in 2004 than in 2003.

It is an incontrovertible fact that equity analysts love a good junket, and a trip to the Las Vegas of the East is probably slightly more appealing than a tour to a bloody big hole in the ground somewhere in the middle of outback Western Australia.

And so it was that analysts from SB Citigroup and from Deutsche Bank bravely volunteered to assess opportunities for Australia’s gambling-related companies at the recent Asian Gaming Expo, held in Macau.

SB Citigroup describes the market potential in Macau as "staggering". Industry estimates forecast the gaming market to increase four-fold from 2004 to 2010, to reach US$20bn in gaming revenues, and for non-gaming revenues to grow from almost zero to between US$20 to US$30bn over the same period.

Presently, hotel rooms are few, and poor, and entertainment outside of gambling is non-existent. In Las Vegas, the average visitor stays 3.4 days and spends US$200. In Macau, the average visitor stays 1.5 days and spends US$500. Imagine if visitors were keen to stay longer! Does China have a rat pack?

Not surprisingly, thousands of new hotel rooms are under development, along with further casino development. Deutsche Bank points out that Publishing & Broadcasting (PBL) is well placed to benefit from the growth in the Macau gaming market via its joint venture with Melco, comprising a high-roller Park Hyatt casino, and a mass-market "City of Dreams" casino resort.

Australasian Investment Review - 2005-06-29 04:09:46