Land And Buildings: Macau A 'Secular Growth Story'

In a recent report centered on MGM Resorts International MGM, analysts at Land and Buildings presented their view that the gaming industry in Macau offers investors a compelling secular growth opportunity in the long-term. The report included a detailed breakdown on the outlook for Macau. China under-penetrated Analysts gave several reasons why they believe that Macau has long-term growth ahead. According to the report, only 1.5 percent of the Chinese population visits Macau, compared to about 10 percent of the U.S. population that visits Las Vegas. The average length of stay in Macau (around 2.0 days) is also trending higher, but it still falls well short of the Las Vegas number (about 3.5 days). Analysts see new resorts, a growing Chinese middle class, a $100 billion investment in high-speed rails, border gate expansion and a new Hong Kong-Macau bridge as long-term growth drivers for the island. Transitory slowdown Analysts believe that the recent fall in Macau gaming revenue that has resulted primarily from governmental corruption crackdowns is only temporary. Analysts point to historical disruptions in gaming revenue growth in Macau (specifically in 2009 and 2012) as being nothing more than pauses in the secular trend. 2015 turnaround factors While many of the report's bullish expectations are focused on the long-term, analysts also list several potential near-term catalysts for Macau. First, all four major U.S.-listed Macau players, Las Vegas Sands Corp LVS, Melco Crown Entertainment Ltd MPEL, Wynn Resorts Ltd WYNN and MGM, have new resorts planed and under construction. Analysts expect a 60 percent overall increase in hotel room capacity by the end of 2016. In addition to capacity growth, analysts believe that the media attention on the anti-corruption campaign will die down and VIP gamblers that were uncertain of Macau will likely begin to return. Finally, analysts predict that monetary and housing market stimulus measures by the Chinese government will likely result in restored confidence of Chinese consumers. Disclosure: The author owns shares of Melco Crown Entertainment.