Asia Weekly

Postcard from Macau

Week Ended: February 12, 2010

During my recent research trip to Asia, my colleague Jesper Madsen and I stopped briefly in Macau to see how the “Las Vegas of the East” was faring. Known for its gaming industry, China’s Special Administrative Region of Macau generates more than half its economic output from casino-related businesses.

Consisting of the main Macau Peninsula, Taipa and Coloane Islands, Macau is reachable in just an hour by high-speed ferry from Hong Kong. Upon arrival at the immigration checkpoint, we encountered long lines of visitors, including many mainland Chinese passport holders—a clear indication that Macau has become a popular getaway for travelers from the mainland. In fact, it ranks second only to Hong Kong in terms of top outbound destinations for Chinese travelers, according to a recent Nielsen report.

A short taxi ride took us to Taipa Island, where several large-scale casino hotels have opened over the last couple years. Tour buses criss-crossed the busy parking lot of one resort, shuttling Chinese visitors between it and several border entries. Inside, the main casino floor appeared quite busy, especially considering it was early on a Saturday afternoon. Interestingly, a multi-story shopping area surrounded the gaming floor, and featured international luxury brands as well as mid-level ”aspirational brands” that appeal to China’s growing middle class. Judging by the foot traffic and shopping bags, business appeared fairly brisk. Outside, visitors took gondola rides in a miniature canal and enjoyed street performers and mimes who were busy posing for photos. Tourists also lined up in front of box offices for tickets to nightly entertainment events.

Overall, what we observed was a far cry from the old-time, casino-focused model for which Macau was previously known. Casino operators seem to have “imported” the integrated Las Vegas resort/casino model to Macau, targeting tourists rather than just gamblers. The broader offering creates a general entertainment destination that appeals to a larger segment of middle-class Chinese. During a research meeting with the management of a listed casino operator in Macau, we learned that the company was generating sizable sales from non-gaming businesses. While we spent just one day in Macau, we got the sense that this new business model was indeed gaining traction. Now remodeled as an integrated resort destination, with both gaming and other leisure attractions, Macau is tapping into China’s large and growing middle-class households that are in search of recreation options as their income levels rise.

Yu Zhang, CFA
Research Analyst
Matthews International Capital Management, LLC

 

 

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