Macau’s gaming industry seems to be unaffected by the the slow down in the world economy and fears of the impending euro crisis. It reported record growth in revenues of approximately 42% in 2011 to $33.5 billion. The growth has, however, slowed down in 2011 as compared to 2010 when the revenues witnessed an increase of 58%. VIP gaming constitutes a major chunk of Macau revenues accounting for nearly 75% of all gambling revenues, followed by slot machines and mass market table games. Prominent gaming companies including Las Vegas Sands (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN) and MGM Resorts International (NYSE:MGM) with operations in Macau are expected to benefit the most from the record growth in Macau revenues. For instance, the Macau region contributes approximately 60% to Wynn’s net revenues.
Factors Driving Macau Growth Story
- Macau has initiated a series of initiatives to encourage visitors. It is investing in new transportation links to ease travel for Chinese visitors. Now, a new railway line connects Macau to Guangzhou in China and a new road bridge links it to Hong Kong.
- An increasing population of Chinese high net worth individuals is the key driver behind Macau’s robust growth. According to a recent Cap Gemini-Merrill Lynch Private Wealth report, China recently surpassed the UK to become the fourth largest population of HNIs.
- Increasing disposable income in China’s growing middle class population is driving the growth of mass market in Macau. Mass market represents 33% of Macau’s total gaming revenues.
- Macau is centrally located with 1.3 billion people living within three hours flight from Macau and 100 million people within the radius of a three-hour drive. We believe the number of tourists visiting Macau would increase in coming years.
We view these factors as a positive for the gaming companies with operations in Macau, specially with the sluggish growth in Las Vegas.