Macau could be a us$ 50 billion gaming market by 2017

Last year the gaming industry recorded gross revenue of us$ 32.9 billion, according to official data. “And I think it’s going to be over a us$ 50 billion market four or five years from now,” Murren predicted.

If the sector were to reach this figure in four years that would represent an annual average growth below 10 percent, a sharp decrease from the pace seen in the last two years. In 2011, gaming revenue rose 42.2 percent but in the previous year it had grown even faster, by 57.8 percent.

The last time the industry grew by less than 10 percent was in 2009, when Macau was feeling the pinch from the global financial crisis. And US-based MGM Resorts is keen to add to the business growth during the next few years through its local joint-venture with Macau businesswoman Pansy Ho Chiu King, MGM China Holdings.

“We have one property there [hotel-casino MGM Grand] that is doing extraordinarily well. In fact we announced record results there also,” Murren said. But Stifel Nicolaus Capital Markets gaming analyst Steven Wieczynski, quoted by Las Vegas Review-Journal, said MGM China’s market share and profitability are still disappointing.

Last month the operator came last in the gaming market share ranking with a slice of a little over 10 percent.

Cotai hopes

Nonetheless, MGM China rose to the highest in five months in Hong Kong trading yesterday after reporting that 2011 profits more than doubled. The company jumped 6.6 percent to close at us$ 1,69, the highest intraday level since September 9. The benchmark Hang Seng Index fell 0.8 percent.

MGM China shares have soared 35 percent in Hong Kong this year. “But we want to build another property there and we do expect to spend us$ 2.5 billion because we think the markets are going to be there for us, and our brands work in China,” Murren explained.

Cotai is gaining popularity and companies that have not yet got establishments there may lose market share, Adrian Lowe, an analyst at Mirae Asset Securities in Hong Kong, said before the earnings release.

In a statement sent to the Hong Kong stock regulators, MGM China confirmed that it has “identified a site of approximately 17.8 acres in Cotai and have submitted an application to the Macau Government to obtain the right to lease this parcel of land for the purpose of constructing an integrated casino hotel and entertainment complex”.

But the operator admitted “there is currently no definitive timetable for finalizing the application process with the Macau Government”.  “We are currently working towards finalizing the concept and design of the project and will be prepared to commence the project upon approval,” MGM China wrote.

Funds available

“In Cotai, we’re well positioned and had plans for a truly unique MGM experience,” said the company’s executive director Grant Bowie in a conference call. “Our plan is to have approximately 500 tables, two and a half thousand slots, 1,600 rooms,” he revealed.
After the government’s green light, Bowie is confident it could get the resort up and running in “approximately 36 months” at an investment of “approximately us$ 2 billion to us$ 2.5 billion”.

Three weeks ago, Lands and Public Works Bureau (DSSOPT) director Jaime Carion said two of the three Cotai land grant applications filed by gaming operators could be approved by the end of this year.

But Gabriel Chan, an analyst at Credit Suisse Group in Hong Kong, believes MGM China might be the one left waiting. Talking to Bloomberg, Chan foresees that the land premium negotiation and land approval process for the group’s Cotai site application will be delayed to next year, pushing the resort opening to 2016 or beyond.

MGM China has announced a special dividend of us$ 0,10 cents per share. “We are pretty happy about the dividend payout,” Chan said. “The company has a high level of net cash. It is likely to maintain a high payout policy.”

Even after paying a dividend, MGM Resorts said it “has sufficient resources (…) to finance its operations and expansion of its business, including the development of an additional casino and hotel complex in Cotai”.

At the end of the last quarter, MGM China had approximately us$ 720 million in cash and debt of us$ 552 million. But its debt was smaller than its operating profit in the last 12 months, Bowie emphasised.