Asian gambling stocks set records | IXGAMES

Asian gambling stocks, industry laggards last year, are setting records as investors bet on new casino projects in Macao and Singapore. Shares of Malaysia’s Genting, the builder of Singapore’s second casino, and Australia’s Aristocrat Leisure, the world’s second-largest slot-machine maker, are each up more than 40 percent in the past 12 months.Even after their gains, Asian casino stocks are less expensive relative to earnings on average than for such U.S. gambling companies as Las Vegas Sands and MGM Mirage. Asian stocks are set to catch up, said Charles Norton, who manages the $70 million Vice Fund in Addison, Texas. “One of the reasons why we like the gaming sector as much as we do is just Asia,” said Norton, whose fund buys alcohol, tobacco and firearms stocks along with gaming companies. “It’s an enormous driver.” He holds shares of Melco PBL Entertainment (Macao), a partnership between Australia’s Publishing & Broadcasting and Melco International Development that is building Macao casinos. The eight gambling stocks in the Morgan Stanley Capital International Asia-Pacific Index had an average increase of 21 percent last year. The USA Index, composed of six gambling stocks, posted an average gain of 57 percent last year. Macao, the Portuguese enclave that reverted to Chinese control in 1999, passed the Las Vegas Strip as the world’s biggest gambling market in 2006. Genting last month said it planned to build a casino in Macao. The 28-square-kilometer (11-square- mile) area is the only place in the world’s most populous nation that allows casino gambling. U.S. gambling shares benefited last year from Asia casinos. The Las Vegas operator Steve Wynn, the MGM Mirage’s Kirk Kerkorian and the Las Vegas Sands’s Sheldon Adelson capitalized earlier than Asian companies on the demand in Macao. U.S. companies opened gambling houses after the Hong Kong billionaire Stanley Ho in 2004 lost his four-decade monopoly to operate casinos in Macao. The 10 biggest gambling companies in Asia by market value sell on average for 19.4 times earnings. The 10 largest U.S. casino owners trade at an average of 34.9 times earnings, excluding Wynn’s Wynn Resorts, whose value is 5,395 times earnings because the five-year old company was not profitable until last year. Wynn Resorts is opening a $1.2 billion Macao casino this year. Macao’s gambling regulator said Jan. 23 that revenue surged to 55.9 billion patacas, or $6.95 billion, in 2006, a 22 percent gain on the year earlier. In the United States, Nevada has yet to release full-year figures for Las Vegas’s revenue. Morgan Stanley estimates the city’s 2006 gaming revenue at $6.5 billion. The possibility that China might relax gambling restrictions elsewhere in the country could hurt the industry, said Matt Hoult at ABN AMRO Asset Management. Other risks include rising costs for building and maintaining the casinos and competition among operators as venues open. “It’s a bit like the tech boom in that everyone says they’ve got these fantastic earnings coming through so let’s get exposed to it,” said Hoult, who helps manage the equivalent of $4.1 billion at ABN AMRO Asset Management in Sydney, and holds fewer gaming stocks than are represented in benchmarks. “But the supply of gambling facilities may be far in excess of what it’s capable of supporting in five to 10 years time.” Genting, Asia’s biggest casino operator, is valued at 19.9 times earnings, while Las Vegas Sands, the world’s biggest casino games operator by value, trades at 75 times. Las Vegas Sands runs Sands Macau, the world’s biggest casino when ranked by the number of tables. Publishing & Broadcasting, Australia’s biggest media company by market value, trades at 21.9 times earnings. The Sydney company, which now gets 55 percent of its revenue from gaming investments, is a partner in Melco PBL with Ho’s son, Lawrence. Melco PBL raised $1.14 billion in a share sale in December. MGM Mirage, the world’s second- largest casino company by market capitalization, is valued at 34.8 times earnings. The Las Vegas company is building a $1.6 billion resort in Macao that is due to open this year. The next gambling venue that will open up is Singapore. Genting, based in Kuala Lumpur, jumped 54 percent last year and led gains in Asian gaming stocks. The company, controlled by the billionaire Lim Kok Thay, won a second Singapore casino license in December, joining Las Vegas Sands as the only operators in the city for at least a decade.