Investors gamble on Macau Success

Injection of casino project spurs new placement.

Deutsche Bank completed a HK$405.8 million ($52 million) placement in Macau Success yesterday (November 11). The 317 million new share deal was priced at HK$1.28, representing a 9.8% discount to the stock's HK$1.42 close on Wednesday after which it was suspended. The deal had initially been marketed at a 7% to 18% discount.

Macau Success was suspended for all of last week and re-opened trading this Tuesday, jumping from HK$0.95 to HK$1.50 in the space of a day. The huge jump was prompted by news that the group had increased and injected its stake in a Macau joint-venture.

Macau Success purchased a further 14.5% interest in a HK$1.2 billion ($153 million) entertainment complex known as Ponte 16 for HK$1.4 million. The group is developing a hotel, casino and shopping mall in association with Stanley Ho's Sociedade de Jogos de Macau. The latter, Macau's richest man, owns 51% of the JV, while Macau Success will now own 24.5% and Joy Idea the remaining 24.5%.

The placement will increase the freefloat by 20% to 38%. Other major shareholders include Silver Rich Investments, which owned 40% pre deal and Spring Wise Investments, which owned 16%.

Observers say the order book closed six times covered, with participation by 70 accounts. Many had already been buying the stock when it had resumed trading on Tuesday and Wednesday. By geography, 25% went to Europe, 20% to offshore US and the remaining 55% to Asia.

At the placement price, the company is said to be valued at about five to six times 2006 earnings. This year is being used since the project will not on stream until then. The only other major comparable is Stanley Ho's own listed group, Melco International Development, which is also trading at the same P/E level, though on a 2005 basis.

The tycoon caused controversy last week when he appeared to indicate he would turn Melco into the flagship of his gaming empire. This has since been retracted, with the share price slipping from a high of HK$11.4 to HK$8.80 at the time Macau Success priced.

So far this year, Macau concept stocks have performed well, with Melco up 448% and Far Eastern Hotels up 68%.

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