CLSA 2011 gaming

Macau's winning streak to continue

Macau's growth prospects look bright for the foreseeable future, says CLSA's head of consumer and gaming research, Aaron Fischer.
Macau's Lisboa casino (AFP)

In 2006, when Macau's casino industry was growing quickly relative to the world’s best-known gaming city, Las Vegas, it was a big story. But today it is well accepted that Macau has won the race – or at least this leg of it.

Gaming revenues in Macau were four times those in Las Vegas last year, and there is no evidence that the global slowdown is having an impact on business. In fact, gaming revenues hit a record high of $3.1 billion in August this year. 
“We are forecasting an average revenue growth of 17% over the next nine years, which is a very high number,” said Aaron Fischer, head of consumer and gaming research at CLSA. Speaking at the firm's annual Investors' Forum in Hong Kong last week, Fischer estimated that Macau will overtake the US as the largest gaming market in terms of gross gaming revenue by 2015.
Fischer believes that an increase in the number of hotel rooms will drive further growth. There is not enough accommodation in Macau and investment in both hotel rooms and infrastructure will result in strong growth, he said. Macau has 0.7 hotel rooms per thousand tourists compared to four rooms in Las Vegas, 2.4 in Singapore and 1.8 in Hong Kong.   
On a per capita basis, people in America are spending more on gambling than the Chinese. Per-capita gaming spending in China was $25 last year, versus $188 in the US. Fischer expects China's per-capita spending to increase to $78 by 2020, while spending in the US will grow to $211.

But per-capita spending in China will remain a fraction of that in the US because of the difference in disposable incomes. In China the per-capita disposable income of urban households was only $725 last year, compared to $36,436 in the US. The Chinese therefore spend 3.45% of their income on gaming, while Americans spend 0.52%.  
Macau has not yet been successful in diversifying its sources of revenue. Las Vegas derived 60% of its revenues last year from non-gaming activities, including conferences, restaurants and shows, while in Macau 94% of the revenues came from gambling.  
Investments in the gaming sector are actually lower in Macau than in the US, as the Chinese government is trying to limit the number of gambling tables in the city to maintain social harmony, Fischer said. Annual growth in the number of gaming tables, has been slow following a decline in 2008 and is expected to level off at around 5% after 2015.  
Even so, the $13 billion invested in Macau over the past five years has generated gaming revenues of $34 billion so far this year, while the $24 billion invested in Las Vegas has been able to generate only $6 billion.  

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