Thursday, September 02, 2010

I Just Saw the Greatest Gambling Spectacle in History

I Just Saw the Greatest Gambling Spectacle in History
By Frank Curzio, editor, Phase 1 Investor
August 27, 2010

"The only thing Macau needs to create is a way for gamblers to go to the bathroom without getting up from the tables."

I thought my friend Leung was joking. Leung is one of my contacts I met with in Hong Kong. Hong Kong is my first stop in a six-city, 10-day China trip with my Phase 1 colleague Larsen Kusick. Our goal is to find small companies with huge growth potential.

We'll keep Growth Stock Wire up to date as we travel to Shenzhen, Shanghai, Xi'an, Beijing, and Macau, our second stop...

Leung is an executive for one of America's largest financial companies (he asked me not to disclose the name). He knows a lot about China and buys distressed debt all over the country. But as he pointed out, there are no signs of distress in Macau.

Macau is a tiny island on the southern coast of China. And it's the gaming capital of the world. It brings in more revenue per year than Las Vegas. Last month, gaming revenue totaled $2 billion, a new record.

Macau is the only area in China where gambling is legal. For 40 years, Macau's casino industry was a monopoly controlled by Stanley Ho, the richest person in Asia. This changed in 2002, when Macau granted licenses to three American gaming companies...

Today, Las Vegas Sands, Wynn Resorts, and MGM Resorts are operating Macau casinos. Most of MGM's properties are located in the states. But Wynn and Las Vegas Sands are benefiting from the massive Macau trend, which is showing no signs of slowing down. I think that's a big part of the reason these stocks have held up so well in an otherwise depressed market.

To get to Macau from Hong Kong, you must take a one-hour ferry. They leave every 15 minutes. I counted at least 10 boats at the port before boarding my ferry. Each boat can carry 250 to 300 passengers. I got a late start, leaving at 7:30 on a Monday. The boat was packed.

So was the Venetian Macau, which is owned and operated by Las Vegas Sands. At over 10 million square feet, it's the fifth-largest building in the world based on floor space. When you walk inside, it seems even larger.

The ambiance was similar to most Las Vegas hotels – large chandeliers, fountains, and such. But there was one major difference... I've been to nearly every major casino in Atlantic City and Las Vegas. The Venetian's casino space was about three times the size of anything I've seen. And nearly every table was full. Leung later told me the hotel had to close some restaurants to make more space for gamblers.

The area across the street from the Venetian is also owned by Las Vegas Sands. The company is building three more hotels to accommodate the huge demand. Based on the construction site in the picture below, it's clear Las Vegas Sands is betting big on Macau.

Our next stop was the Wynn Macau resort, which caters to high-end clients. The casino floor was smaller, more like a Las Vegas casino. And while it wasn't as packed as the Venetian, it was still crowded. There was a line of two-dozen cabs picking up tourists from the hotel. Most were dressed for a night on the town.

The Venetian and Wynn also have high-end malls. Store names include Louis Vuitton, Gucci, Chanel, Dior, and Prada. At both casinos, the stores were crowded. Many people were carrying bags, not just sightseeing.
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Based on what I saw, the growth in Macau is real. It's no wonder Las Vegas Sands and Wynn Resorts have trounced the market this year.

If these stocks do pull back, I'd use the opportunity to buy.

Good investing,

Frank Curzio