Going beyond Macau’s Casinos
The Supreme Court of the Unites States ruled that sports gambling was legal yesterday, overturning about 1992 ruling that led to the ban across the country.
That got me thinking about gambling closer to home.
With Macau a stones throw away there are dozens of gambling-related companies listed in Hong Kong. However beyond the major casinos I realise I don’t know just how many companies are involved in the gambling industry.
Using a similar methodology to how we found 8 e-sports companies, we made a qualitative screen to find companies related to the gambling theme.
We made a group of keywords such as ‘gambling’, ‘lottery’, and ‘betting’ and ran them across all the annual reports from the latest earnings season.
The results were quite overwhelming, with close to 100 companies!
Upon further inspection we realised we’d hit a lot false-positives though. In particular, four types of false-positives were very prominent;
- The search term ‘Gamble’ picked up every single director or related persons biography who had ever worked for the firm ‘Procter & Gamble’. Boy are there a lot of directors who come from the firm!
- In recent years China has released a few guidelines that are meant to help citizens and corporations act with higher morality to create a more harmonious society. In particular, the ‘Notice on Strengthening the Administration of the Content of Internet Audio-Visual Programs’ and ‘Notice on Regulating Operation Order of Online Games and Prohibition of Gambling via Online Games; triggered a lot of mainland Chinese companies to include the these related terms in their Corporate Governance reports.
- Companies that used to be involved in the gambling industry. This included companies that had sold assets and/or lost casino licenses. Not quite a false-positive but not of ongoing relevance either.
- Banks running prize-linked lotteries. At least, that’s what we think they’re doing. We found a few banks mentioned the word ‘lottery’ as a service. In any case we can’t find evidence that this forms a material part of their business so we’ve excluded them from the list.
After culling these false-positives, and a few companies that were clearly not related to the theme we managed to pare the list down to a more manageable 28 names.
This number was still surprising. We didn’t expect there to be so many listed companies in this space. While 1/3 were Casinos, the remainder was split between ‘Lottery Companies’ and ‘General Beneficiaries’. We’ve broken down the categories as follows;
Casinos; split into Macanese casino operators and ‘Other’ country operators
General Beneficiaries; split into ‘Construction Companies’ and ‘Others’. Generally speaking these companies have some business operations in Macau and benefit from the gambling industry there.
It’s worth noting that this list is by no means exhaustive. We only found companies that are have mentioned one of the keywords in their latest annual report. It’s likely that there are plenty of other companies, especially general beneficiaries, that didn’t make this list.
The 600 pound gorillas of the theme. These are all names many people will be familiar with and account for the majority of the market cap in the space. Intentionally leaving these descriptions brief .
0027 Galaxy — Operates 3 casinos in Macau. [Latest Annual Report]
0200 Melco — Operates casinos in Macau, Philippines, and Cypus. They are also expanding to Japan. [Latest Annual Report]
0880 SJM — The original don of Macau. SJM operates 20 casinos in Macau. [Latest Annual Report]
0487 Success Universe Group — The company operates operates the Ponte 16 casino at the Sofitel in Macau, a property business in Hong Kong, and a Canadian travel business. It looks like they used to have a lottery business but they disposed of it. 38% of the groups revenues came from Ponte 16. [Latest Annual Report]
1600 Macau Legend Development — Operates two casinos in Macau and one in Laos. The company also operates three casinos for SJM in Macau. Laos accounts for 14% of the groups revenues while SJM accounts for ~50%. [Latest Annual Report]
1128 Wynn Macau — Operates two casinos in Macau. [Latest Annual Report]
1180 Paradise Entertainment — Operates satellite properties for SJM. Casinos ‘Kam Pek Paradise’, ‘Waldo’, and ‘Macau Jockey Club’. They also have an equipments business but its negligible as casinos form 96% of their revenue. [Latest Annual Report]
1928 Sands China — Operates the Sands Macau complex with over 12,000 rooms. [Latest Annual Report]
2282 MGM — Operates one casino in Macau. Opening a second one in 2018 on the Cotai strip. [Latest Annual Report]
0102 Summit Ascent — Operates a casino in the far East of Russia called ’Tigre de Cristal’. The vast majority of the revenues come from the ‘rolling chip business’, which targets VIP customers from Northeast Asia. Rolling chip turnover at Tigre de Cristal in 2017 amounted to HK$18.8 billion (2016: HK$14.1 billion), representing an increase of 33% year-over-year. The casino has been running for two years and is the only casino in the region. [Latest Annual Report]
0472 New Silkroad Culturaltainment — A mouthful to say…Property Developer with a 72% stake in ‘Megaluck Casino’ in Jeju, South Korea. This stake generates ~38% of company revenues. Has a bunch of other projects too but none casino related. [Latest Annual Report]
0582 Landing International Development — Operates a casino in Jeju Island, South Korea called Shinhwa World. The resort covers an area of 2.5 million square metres and is still partially under development. The company used to own a casino in London and an LED business but recently disposed of them. This leaves them with a property development business focused on building their casino resort in Korea. Roughly 25% of revenues currently come from the casino. [Latest Annual Report]
1076 Imperial Pacific — Operates casinos in the US territory of Saipan. With tourism up >30% YoY to Saipan they could be well positioned to capture growth in the industry. [Latest Annual Report]
3918 NagaCorp — largest casino operator in Cambodia. Their flagship NagaWorld has 70-year license to operate in Phnom Penh, as well as a 41-year monopoly within a 200km radius of the capital. [Latest Annual Report]
Unsurprisingly all of the lottery operators were involved in selling lottery services to China exclusively. The Chinese lottery market comprises two lotteries; the China Welfare Lottery and the China Sports Lottery.
0555 Rexlot — 100% of the groups revenues from from lotteries. The company operates scratch cards, distribution & marketing, sports video, mobile lottery amongst other but the >75% of revenues come from ‘Computer Ticket Games’ in the welfare lottery. A pure play on the theme that is not tied to the casino business.[Latest Annual Reports]
8071 China Netcom Technology — Involved in fintech, a wearable devices, a sports training business, and a lottery business. The lottery business operates in Shandong. It is involved in the development of computer software, hardware and application systems, and sales of its own technology. The division shares a portion of revenues with the Shandong operator. However this forms less than 1% of revenues, with over 60% coming from fintech. Poor exposure to the theme.[Latest Annual Reports]
0082 V1 Group — involved in AV media, online games, and cloud computing, amongst others. The company cites video, sport, game and finance as their focus. It appears they used to have a lottery business but that was suspended last year resulting in a carried over losses. They have two websites, Zhongguozucaiwang（中國足彩網）(www.zgzcw.com) and Diyica（i 第一彩）(www.diyicai.com), in their lottery-related business but they only carry out lottery-related information publishing now. [Latest Annual Report]
1371 LotSynergy — provision of technology and operation services for lottery systems, terminal equipments and gaming products in the China’s lottery market. Apparently their video lottery terminal handles 10% of the welfare lottery volumes in China now. They used to have a contract with the government since 2003 but the contract expired in 2015 and it appears their revenues are mostly from servicing the existing terminals. A cursory glance shows they went from a small profit to a wide loss in 2015 and have been posting losses ever since. [Latest Annual Report]
8167 Neo Telemedia — operations mainly comprises sales of telecommunication products and services and operation of Internet finance platform business. There is a line item in their Intangible Assets for HKD373MM in a ‘Lottery Development System’ which they are apparently depreciating. This constitutes 65% of the total intangible assets. Presumably its a remnant of an old business. Otherwise no mention of gambling-related businesses. [Latest Annual Report]
8198 Loto Interactive — engaged in the provision of lottery-related technologies, systems and solutions to two state-run lottery operators in China. Distributes lottery terminals as part of the China Sports Lottery Administration Centre, which apparently is the only sports lottery operator in PRC? This business line contributes 97.9% of revenues. They also recently acquired 500.com, a NYSE listed online Chinese online sports lottery service provider. [Latest Annual Report]
8279 AGTech Holdings — PRC lottery market player with fully integrated professional lottery games and systems, hardware, distribution and ancillary services. Company is an Alibaba Group company (AG?) and services lotteries run by Alibaba and Ant Financial by the looks of things. [Latest Annual Report]
0695 Dongwu Cement — A cement company that operates in Eastern China. They seem to be following the HK conglomerates playbook as they’re now dabbling in financial services, money lending, and property development. They are in the process of acquiring a group of companies known as the ‘Saipan Group’ which, as the name implies, operates in the US territory of Saipan. The company came up because Saipan is a territory where gambling is legal. It’s not immediately clear whether they are involved in, or intend to be involved in casinos but either way the impact on the top line is minimal. [Latest Annual Report]
1183 MECOM Power and Construction — ranked fifth among Macau-based construction contractors in the civil engineering market in Macau and second in the high voltage power substation construction project market in the city. It appears that close to 80% of the revenues come from construction/fitting-out work. [Latest Annual Report]
1722 Kin Pang Holdings — Integrated construction company that operates only in Macau. Customers are split between (i) hotels and casinos (ii) utility companies (iii) Macau government. [Latest Annual Report]
2266 Lai Si Construction — fitting-out and construction. Work is evenly split between (i) hotels and casinos (ii) construction as a main contractor (iii) repair and maintenance work. Fitting out work accounts for 86% of their revenues. [Latest Annual Report]
2448 Space Group–second largest fitting-out works contractor in Macau in 2016 in terms of estimated revenue, with about 1.9% market share. 100% of its revenue comes from Macau and their work mostly comes from Hotels, Casinos, Restaurants, and Retail shops. [Latest Annual Report]
1159 Starlight Cultural Entertainment–An investment holdings company. Their split along Media, Gambling, and Chemical Products. Gambling forms 23% of their revenue with Chemicals accounting for the balance. The gambling arm has (had?) a junket relationship with 3918 NagaWorld. [Latest Annual Report]
2312 China Financial Leasing Group Limited – An odd one on the list. They’re an investment holdings company. They own a portion of 0555 Rexlot, mentioned previously. This shareholder amounts to 8% of the total assets of the company. [Latest Annual Report]
1655 Okura Holdings — Okura operates 19 Pachinko halls in Japan. It’s a struggling industry as competition in other forms of entertainment. Gambling is also being slowly legalised. Industry has been in contraction since 2005. Still, it’s an interesting market with large revenues and scope for consolidation. Interesting access from the HK stock market. [Latest HY Report]
Casinos in Macau
0027 Galaxy — 3 casinos in Macau.
0200 Melco — Casinos in Macau, Philippines, and Cypus
0880 SJM — 20 casinos in Macau
0487 Success Universe Group — 38% revs from Ponte 16, Sofitel Macau
1600 Macau Legend Development — 2 Casinos in Macau, 1 in Laos
1128 Wynn Macau — 2 Casinos in Macau
1180 Paradise Entertainment — 3 Satellite properties for SJM
1928 Sands China — Sands Macau Complex
2282 MGM — One casino in Macau, opening a 2nd in 2018
0102 Summit Ascent — New casino in Russian Far East
0472 New Silkroad Culturaltainment — Jeju, South Korea
0582 Leading International Development — Jeju, South Korea
1076 Imperial Pacific — Casinos in Saipan
3918 NagaCorp — Casinos in Cambodia
0555 Rexlot — Pure-play
8071 China Netcom Technology — Low exposure <1% to lottery
0082 V1 Group — Lottery business suspended
1371 LotSynergy — Government contract expired
8167 Neo Telemedia — Already disposed?
8198 Loto Interactive — Pure-play
8279 AGTech Holdings — Alibaba Group lotteries
0695 Dongwu Cement — May expand in Saipan. Low exposure.
1183 MECOM Power and Construction — Macau construction pure-play
1722 Kin Pang Holdings — Macau construction pure-play
2266 Lai Si Construction — Macau construction pure-play
2448 Space Group — Macau construction pure-play
1159 Starlight Cultural Entertainment — 23% from gambling
2312 China Financial Leasing Group Limited — 8% of assets are 0555 Rexlot
1655 Okura Holdings — Operates 19 Pachinko halls in Japan
Improving the Results
This resulted in a lot of names and required some sub-categorisation. It might be better to focus on certain sub-categories and go deeper into them. One option is to expand the documents queried. I had a quick look at some announcement and circulars and there were a few MoUs that suggested companies were making headway penetrating new markets. Casting the net wider would allow a broader capture of a single subcategory.
Going for a wider set of keywords could capture the wider tails. We didn’t search for terms like ‘junkets’, for example.
Further analysis would be breaking down segment/regional revenues and comparing them against the peers contained in the theme. Weighted baskets could be created on this basis to give access to the various gambling themes available on the Hong Kong Stock Exchange.
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