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Macau
Gambling at casinos is risky. But even after a 17-month slump, building casinos in Macau still looks like one of the best Investments around, Bloomberg.com reported.
Operators including Sands China Ltd. and Galaxy Entertainment Group Ltd. have earmarked $28 billion in spending over the next three years, with new projects that integrate casinos with hotels and entertainment complexes.
The aim is to broaden Macau’s appeal beyond hard-core gamblers to families and tourists, and placate a government in China intent on reining in the corruption and graft associated with high-rolling visitors to the city.
While the extra expenditure will slow the return on invested capital, or ROIC, the new projects will hand back an average return of 21 percent three years after opening, according to brokerage CLSA Ltd. That compares with about 50 percent at the peak in Macau two years ago and returns of less than 10 percent forecast for hotel groups in Hong Kong.
“We think the gaming sector is a good long-term investment as the industry generates high cash returns and the companies have a track record of paying high dividends,” said Aaron Fischer, head of consumer and gaming research at CLSA, one of the most experienced analysts who cover the casino industry.
While hoteliers can wait as long as 20 years to get their money back on major investments, the payback on Macau casinos might stretch out to a little over five years, from two years during the 2013-2014 peak. “It?s still very short,” Fischer said.
The risks remain high for casinos. China’s economy could continue to slow and yuan devaluation could curb tourism as it makes traveling outside the mainland more expensive for price-sensitive lower-tier customers gambling operators are trying to attract, said Richard Huang, an analyst at Nomura Holdings Inc.
It would take time to draw enough vacationers to make up for the high rollers the industry has lost, he said.
“Casino resorts have always been high risk, high Return,” Huang said. ?There?s no guarantee for casinos. One day you have a lot of customers and the next day you have no customers, like this year.”
Source: www.bloomberg.com
Read more at www.bloomberg.com/news/articles/2015-11-18/what-macau-slump-casino-returns-projected-to-exceed-20-percent
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