In the constant race for governments to find a way to generate tax revenue, gambling always ends up as the proverbial last resort. But when used properly, not only does gambling generate tax revenue, it also increases tourism, which in turns generates consumer spending in a wide variety of shops, restaurants, hotels and other related areas.
The Wall Street Journal reported this week that the lower house of Japan’s Parliament passed a bill opening the way for casinos and sent it to the upper house for review. While the report noted that the process for approval would be slow, and actual casinos may not open until after Japan hosts the 2020 summer Olympics in Tokyo, the ramifications are obvious: it could be huge for companies that go in to do business there.
While the top casino operators may end up doing joint ventures with top Japanese companies, the benefit is obvious for Japan, as tourism there has surged over the years. In fact, last year 20 million tourists visited the country, the highest reported number ever.
It would seem to us that four companies that would be likely candidates to want to be in Japan are the four companies that currently have casino operations in Macau, which is a dependent territory of China. We screened our 24/7 Wall St. research database for companies that had Buy recommendations and found four big Macau players.
Las Vegas Sands
While the gaming stocks started the year with some issues in Macau, things have really turned around. This stock has traded well, although it remains way off highs printed in 2014. Las Vegas Sands Corp. (NYSE: LVS) is the world’s leading developer and operator of integrated resorts. Its properties include the five-diamond Venetian and Palazzo resorts and Sands Expo Center in Las Vegas, Sands Bethlehem in Eastern Pennsylvania and the iconic Marina Bay Sands in Singapore.
Through majority ownership in Sands China, the company owns a portfolio of properties on the Cotai Strip in Macau, including the Venetian Macao, the Plaza and Four Seasons Hotel Macao and Sands Cotai Central, as well as the Sands Macao on the Macao Peninsula.
The stock is trading at some of the cheapest levels in years and reported very solid third-quarter numbers back in November. Merrill Lynch noted this at the time:
While third quarter headlines were helped by good luck, core trends in Macau are ahead of our and investor expectations. We think results confirm both a stabilization in mass market trends in Macau and meaningful market share gains for Las Vegas Sands.
Las Vegas Sands investors receive a 4.59% dividend. Merrill Lynch recently raised the stock to Buy with a $66 price target. The Wall Street consensus target is $60.27. Shares closed Wednesday above that at $62.68.
MGM Resorts International
This old-school company combines a very strong presence in Las Vegas with growing clout in Macau. MGM Resorts International (NYSE: MGM) owns or operates casino resorts in the United States and China that offer gaming, hotel, convention, dining, entertainment, retail and other resort amenities.
MGM’s casino operations include various slots, table games and race and sports book wagering. The company operates 12 wholly owned resorts in the United States and MGM Macau resort and casino in China, as well as develops an integrated casino, hotel and entertainment resort on the Cotai Strip, Macau.
MGM also reported very solid third-quarter results, which were ahead expectations on strength in the Las Vegas properties and in Macau. Merrill Lynch noted at the time:
With revenue tailwinds, especially in convention and entertainment, we increase our EBITDA estimates +3% for 2017 to $3.059 billion. Reiterate Buy on accelerating organic growth in Las Vegas and Macau and new openings.
The $33 Merrill Lynch price target is in line with the consensus target of $33.34. The shares closed on Wednesday at $29.95.