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Galaxy Entertainment Group Limited (HKSE:27) and Sands China Ltd (HKSE:1928) are two Hong Kong-listed casino shares that have operations in Macau. The former Portuguese colony, and now a special administrative region of China, is the world’s largest gaming market in terms of casino gaming revenue and is the only location in China offering legalised casino gaming.
Galaxy Entertainment owns three destinations in Macau – Galaxy Macau, Broadway Macau, and StarWorld Macau. On the other hand, Sands China operates the largest collection of integrated resorts in Macau – The Venetian Macao, Sands Cotai Central, The Parisian Macao, The Plaza Macao, and Sands Macao.
Galaxy Entertainment and Sands China have had a mixed set of results over the past couple of years but things are looking better over the long-term and they’re now two of the strongest Macau casino stocks in the market.
A look back
Galaxy Entertainment’s revenue and net profit have grown by around 11% and 31% respectively over the past five fiscal years (see below). Even though revenue and net profit fell in 2015 – along with a crackdown on conspicuous spending in Mainland China – they have since picked up the pieces and 2018’s figures have surpassed those in 2014.
In 2015, strong macro headwinds impacted Macau and its entertainment industry, mainly due to slowing Chinese spending, resulting in cautious customer behaviour across the market and fewer high roller visitors to the city.
Source: Galaxy Entertainment 2018 annual report
In terms of its dividend, Galaxy Entertainment paid out only around 30% of its earnings as a dividend in 2018, down from a dividend payout ratio of around 50% in 2014. With a low payout ratio, Galaxy Entertainment has the buffer to increase dividends even amid tough times in the future.
Meanwhile, as for Sands China, revenue and net profit in 2015 and 2016 fell but the recovery has been slow. In 2018, the company’s revenue and net profit have not gotten back to the highs seen in 2014. However, things seem to be improving, as seen from the consistent growth in both the top- and bottom-lines in 2017 and 2018 (as the new Parisian Macao opened its doors for business).
Source: Sands China 2018 annual report
Sands China’s dividend looks ominous. In 2018, it paid out more than 100% of its earnings as a dividend. If any headwinds were to hit the business again, dividends could be cut.
Looking into the future
Both Galaxy Entertainment and Sands China are positive about the prospects in Macau and for good reasons. Factors such as the urbanisation of China, continued growth of the Chinese outbound tourism market, and the increased usage of existing transportation infrastructure, as well as the introduction of new transportation networks, should help fuel demand for Macau’s casinos.
Speaking of new transportation modes, the opening of the Hong Kong-Shenzhen-Guangzhou high-speed train and the Hong Kong-Zhuhai-Macau Bridge last year should further boost the appeal and accessibility to Macau for both Chinese and international visitors.
Furthermore, the opening of the Light Rail Transport in Taipa, Macau, in the second half of 2019 will also make travelling easier within the region. With a long-term view, investors could do well by owning shares in these two casino operators.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Sudhan P doesn’t own shares in any companies mentioned.