What Happens in Macau...Doesn't Have to Stay There

04/26/2013 7:00 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

This company is changing the face of gambling in China's own larger-than-life version of Las Vegas, says Benjamin Shepherd of Personal Finance.

The Chinese may have only recently developed a taste for beer, but over the millennia they’ve demonstrated an affinity for gambling.

Given the Chinese love for games of chance, the country’s special administrative region of Macau has become a gambling mecca seven times the size of Las Vegas. Over the past five years, the Chinese gambling industry has grown by better than 30% annually.

And the largest casino operator in the region, SJM Holdings (Hong Kong: 0880), owns 20 of the 35 casinos in Macau.

Gambling in China is a radically different experience compared to Las Vegas. Chinese gamers typically visit casinos, spend their money, and then go home, with most casinos not offering accommodations, restaurants, or floor shows.

SJM Holdings has worked to change all that. The company was awarded a land grant in October, allowing it to develop one of Macau’s only casino-resorts, and to create a venue that would be familiar to any Las Vegas gambler.

While it has yet to receive final approvals to begin construction, the company’s new resort will cater to Chinese gamblers travelling with their families, and aims to keep all of their yuan spending under one roof.

The company will also benefit from a new ferry terminal slated to open soon in the region, and new high-speed railroads that will reduce travel times between mainland China and Macau. A 30-mile long bridge slated to open in 2015 will provide a direct connection between Macau and Hong Kong.

Macau’s casino revenues are forecast to rise by about 15% in 2013, rivaling the expected 12% growth forecast for Las Vegas. Despite the weak Chinese economy, SLM’s 2012 net profit reached HK$6.75 billion ($870 million), a year-over-year increase of 27%.

As the Chinese economy continues to firm up, the company’s revenues should grow by at least 20% over the next few years, particularly once its new venue opens and tourist connections become more efficient. SJM Holdings is a buy.

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