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Gambling is in everyone’s blood, and there is no better place to wager bets than massive complexes known as casinos. The integrated resorts (IRs) of Macau, the world’s gambling mecca, have proven to be experts at drawing in gamblers.
With increasing affluence in China and with the Chinese economy registering strong GDP growth over the last two decades, the growth of the middle-class and upper-middle-class segments has been strong. As the rest of China bans gambling, with Macau the only place within its jurisdiction where it is legal, the former Portuguese colony has been a prime beneficiary of those looking to mix leisure with gambling.
In that vein, I decided to take a look into four Hong Kong-listed Macau casino stocks to determine which is the most attractive for investors. The four companies are Galaxy Entertainment Group Limited (SEHK: 27), SJM Holdings Limited (SEHK: 880), Wynn Macau Limited (SEHK: 1128) and Sands China Ltd (SEHK: 1928).
Revenue and profit growth
First off, let’s compare the revenue and net profit growth for all four companies. From the above table, it can be seen that only Sands China posted year-on-year growth in revenue among the four casino plays. Both SJM and Sands China posted year-on-year net profit growth, while Galaxy and Wynn registered year-on-year declines in net profit.
Winner: Sands China
Net profit margin
For net profit margin, Galaxy and Sands China are clearly the leaders, with net margins above 20%. SJM has the lowest net margin of all the casino companies at 9.8%.
A high net profit margin helps to buffer the company against sudden drops in demand, which may be caused by regulatory changes (e.g. Chinese government’s crackdown on luxury spending in 2015) or an economic downturn.
Winner: Galaxy Entertainment
Return on equity
The final attribute is the return on equity (ROE), which measures the profit generated per dollar of invested equity in the business. Wynn has an ROE which is off the charts at 271.6% as it has a very low equity base, and is a clear winner here. Sands China also has a very high ROE of 61.7%, and along with Wynn, are extremely efficient at generating net profit per dollar of capital.
Winner: Wynn Macau
The best casino stock
Overall, after weighing the various aspects above, I have to conclude that Sands China is the clear-cut winner. Though it may not have the highest profit margin or ROE among the four, it is the only company that registered year-on-year revenue and net profit growth.
Its net margin is also impressive at around 24%, while ROE is superior at 60+%. All in all, Sands China offers the best bang for an investor’s buck among the Macau gaming stocks.
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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 Royston Yang doesn’t own shares in any companies mentioned.