Investing is not gambling. However, gambling is a big business to invest in. For investors who still have not joined the ride for Macau booming, it is a good time to take a look at one of the fastest growing and developing areas in Macau, the Cotai Strip. The Cotai Strip will transform Macau from a pure gambling city to a diversified, multifunctional, and entertainment hub.
Las Vegas Sands Corp. (NYSE:LVS) reported a record quarter for Q1 with $3.30 billion in revenue, an increase of 19.50% year-over-year. Las Vegas Sands Corp. (NYSE:LVS) paid a recurring quarterly dividend of $0.35 per share, which increased 40% over Q1, 2012. All this is contributed by all-time record performance in Macau, the world’s largest and most profitable gaming market. Las Vegas Sands Corp. (NYSE:LVS), however, is not alone in Macau. Wynn Resorts, Limited (NASDAQ:WYNN) also enjoyed a revenue increase from Macau, which had 4.4% revenue growth in Q1. Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL), a developer and owner of casino gaming and entertainment casino resort facilities in Asia with a strong presence in Macau, also saw its net revenue increased 11% in Q1 as compared to the same period in 2012. By taking a detailed look into their expansion plans, we can see that all these casinos are escalating their development into the Cotai Strip to continue their growth in Macau.
Cotai Strip expansion
Cotai is a combination of the Coloane Island and Taipa Island names. Cotai was a marshy land between Taipa and Coloane, until one man came up with a vision that coincided with the Macau government. That man was Sheldon Adelson, the chairman and CEO of Las Vegas Sands Corp. (NYSE:LVS), whose vision is to create an Asian Las Vegas in Macau. With a record Q1, the Cotai Strip was the main driving force behind the growth in Macau’s casino market. Las Vegas Sands Corp. (NYSE:LVS) continues to expand its operation in the Cotai Strip, aiming for mass-market visitors. Las Vegas Sands’ mass table win was up 63.2% to $863 million in Macau for Q1 as the company had invested heavily to serve the mass table from the very beginning. The competition in Cotai Strip is, however, starting to heat up as Las Vegas Sands is joined by Wynn Resorts, Limited (NASDAQ:WYNN), MGM, SJM, Melco Crown’s Studio City and Galaxy Phase II, which were approved late last year.
These casinos will come online over a 3 year period, starting in 2015. These casinos will be in addition to the current Venetian, Sands Cotai Central, City of Dreams, Galaxy Cotai, and Grand Waldo, as seen from the map below.
Source: Macau Tripping
Competition and development
Wynn Resorts, Limited (NASDAQ:WYNN) reported a better-than-expected earnings for Q1; however, investors were not cheerful. While Wynn is losing out to other competitors in Macau, CEO Steven Wynn Resorts, Limited (NASDAQ:WYNN) remains bullish about the long-term prospects and continues to push forward with its Cotai Strip expansion. On the other hand, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) enjoys a much more solid growth from the mass market. Melco continues to expand City of Dreams and expects to complete its Studio City in the Cotai Strip by mid-2015.
While all casinos are racing to complete their projects, Macau’s government intends to spread out the completion of construction over a period of time to avoid the burden on labor and infrastructure. Having the first mover advantage, Las Vegas Sands is expected to enjoy solid growth from Cotai Strip with limited competitions for the next 3 years while it continues to develop its fifth resort, The Parisian Macau. Sands will invest $2.8 billion into The Parisian Macau, which is scheduled to open in late 2015.
As the Chinese government intends to diversify Macau from gambling, the Macau government will only allow a 3 percent annual growth of the table game numbers over the next 10 years. With all the upcoming casinos, government’s target number seems to be inadequate. Furthermore, as the transportation continues to improve, mass market will become the main growth driver going forward.
What now?
While Macau remains the primary growth driver for top U.S. casinos, including Las Vegas Sands, Wynn Resorts, Limited (NASDAQ:WYNN), and MGM, these casinos will put all their efforts into Cotai Strip to continue the expansion. Las Vegas Sands had returned $4 billion of cash to its shareholders through the last 5 quarters as it cash flow continued to improve. Las Vegas Sands also plans to divest its Sands Bethlehem to continue its focus in Asia and return more capital to shareholders. With over 14 million visits to Las Vegas Sands’ Cotai Strip properties, Las Vegas Sands continues to enjoy a solid edge in the Cotai Strip. More solid growth, especially from the mass market, is expected for the next 3 years. However, as the government continues to aim for diversification, competition will grow as all the major casinos join the party in Cotai.
Bottom line
With solid cash flow and record revenue, Las Vegas Sands is expected to return more cash to its investors while maintaining sufficient cash and a healthy balance sheet to carry on the on-going projects. Cotai Strip will continue to be the hot growth driver for the next few years for all the casinos involved and Las Vegas Sands will continue to be the major beneficiary with its central, prime locations. The story of Cotai Strip had just begun.
Nick Chiu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Why Is the Cotai Strip so Important? originally appeared on Fool.com and is written by Nick Chiu.
Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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