A New ‘Gamble’

12/29/2006 12:00 am EST

Focus:

Robert Hsu

Editor, China Strategy and Asia Edge

Returning to the Orient, Robert Hsu finds much to like about an additional entry from the rapidly-expanding recreational-haven Macau. Here, he adds to his casino and gambling portfolio with a recommendation of a newly-public player...

"Chinese gamblers tend to be much more aggressive than Western players. In America, gambling is generally recreational. In China, it is much more serious and intense. Casino industry experts have told me that, at the Las Vegas casinos, the average Chinese gambler loses five times as much money as the average non-Chinese gambler.

"My good friend Simon lost $2 million during the course of an evening at the Mirage. But I can assure you that Simon is no dissolute gambling addict. He's a rich, extremely serious professional investor who relishes the contest, enjoys using his skill, and feels no guilt about his loss.

"With this strong Chinese propensity for gambling, you can see why companies are clamoring for a piece of the pie. Macau is about an hour's boat ride from Hong Kong and within a three-hour flight from many big cities in Asia, so it is the destination for those who want to gamble.

"Prior to 2002, a billionaire by the name of Stanley Ho had enjoyed a monopoly on Macau gambling for four decades. The Macau government ended his reign by issuing two additional casino licenses, which were subsequently subdivided into five. This opened the door for new businesses to come in and new casinos to be built, and they attracted new tourists and gamblers in droves.

"Since 2002, the gaming industry in Macau has taken off, so much so that the city surpassed Las Vegas in gaming revenues this past year. In October alone, two million people visited Macau, a 20% jump over last year.

"Two major American casino operators, Las Vegas Sands (LVS NYSE) and Wynn Resorts, have set up shop there. The most ambitious player is Las Vegas Sands, whose casino opened in 2004 and made back its $265 million investment in only nine months. Today, 60% of Las Vegas Sands' profits come from the company's single Macau casino. LVS has ambitious expansion plans in Macau, and I recommend it as a long-term play. It's done extremely well for us, up 82% since we bought it in March.

"But the stock I'm recommending to you today in Asia Edge is Melco PBL Entertainment (MPEL NASDAQ GM). It's a new company with a new listing on the NASDAQ. That means it's riskier than LVS, but I believe it has much greater upside potential in the near term."

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