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Vegas Caught in Sand Trap. Follow Lady Luck East

|Includes: Las Vegas Sands Corp. (LVS), MGM, MLCO, WYNN
Lady luck has moved away. No longer happy in Las Vegas, she has packed up her chips and taken up permanent residence in Macau. After all, that is where the profits are.

The latest numbers from Macau indicate an ongoing revenue boom there. And this is one boom with no end in sight.

Casino revenue in Macau rose 48 per cent in February compared to the year before. That's a huge jump by any standard. It's even more impressive considering the lower number of gambling days in 2011 due to the timing of the Lunar New Year.

By comparison, Nevada has rolled snake-eyes. Gambling on the Las Vegas Strip, the city's main tourist district, was up just 4.1% for the year as a whole. Revenues dropped nearly 10% in each of the past two years.

But that's no reason to avoid investments in some of the biggest casino names in Vegas. Wynn and Las Vegas Sands have expanded aggressively into Macau – a move that has put them in the right place at the right time.

Macau is now the world's largest casino hub. Casino gambling revenues in Macau, the only place in China where gambling is legal, rose 58 per cent to 188.3 billion patacas last year. A former Portuguese colony, Macau still uses patacas as its currency.

In U.S. dollar terms, Macau's gaming revenues topped $23.4 billion for the year. That's more than four times the $5.62 billion raked in on the Las Vegas Strip.

It gets worse on this side of the Pacific. Casino operators don't even like to talk about America's forlorn east-coast gaming hub, Atlantic City. Gambling kingpin Boyd Gaming recently reported that its fourth-quarter revenues of $551.9 million rose 43.4 percent from 2009. But those numbers rose only because the revenues from Borgata in Atlantic City were not formally included. With Borgata included, total revenues actually declined 1.5 percent.

Even the giant Caesars Entertainment reported a loss for the fourth quarter as Atlantic City revenue declines dragged down the firm's overall performance.

Picking Casinos On A Roll

The best performing casinos are those with a stake or headquarters in Macau. Only six casino operators are licensed in Macau. Two of them are traded in Hong Kong and are illiquid pink sheets in the U.S.: Galaxy Entertainment Group, and SJM Holdings, a part of the legendary Ho family's empire.

The big four traded on U.S. exchanges are Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM), Wynn Resorts (NASDAQ:WYNN) and Melco Crown (MPEL) which has Australian roots.

Las Vegas Sands shares have performed strongly over the past year but have fallen back on reports that the company is under investigation by the SEC.

Wynn Resorts' Las Vegas revenues grew 8% and profits grew 25% in the quarter ended Dec. 30 compared the same period last year.

Wynn Resorts One-Year Performance

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Wynn's one year share performance is shows a gain of more than 100 percent in both the U.S. listing and the Hong Kong listed company, Wynn Macau.

MGM Resorts International One-Year Performance

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MGM may be underperforming due to relatively a smaller Macau exposure. The company reported a fourth-quarter loss despite half-a-billion dollars in cost-cutting.

Melco Crown recently reported a 93 percent increase in fourth quarter revenues.

Melco Crown One-Year Performance

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Melco Shares are up 68 percent for the year. The firm has struggled to emerge into profitability due to lavish construction efforts and corresponding debt loads.

Predicting the Next Roll of the Dice

Las Vegas has a long way to go before it can get out of its current quagmire. Although revenues are increasing, the city is burdened by a heavy load of new hotel rooms. Thousands of new rooms became available just as the financial crisis hit.

More rooms are still being completed in Las Vegas, coming into competition with existing casino bed space. The possibility of fuel price hikes could crimp summer airline traffic. Gamblers may also choose to try their luck at casinos closer to their home cities.

Not surprisingly, predictions for Macau's casinos continue to be upbeat. As the Chinese population gets richer, demand for gaming continues to rise. Although the city's infrastructure is strained, China's famous bullet trains may soon be arriving in the gambling enclave.

For those who have no problems with limited competition, Chinese authorities seem unwilling to extend new gambling licenses to anyone beyond the six existing operators.

The message to gaming investors is simple. Go where the money is. American-listed casino companies need Macau exposure to grow revenues while Las Vegas attempts to recover.

It's worth noting in conclusion that Wynn is counting on a rare opportunity to expand in Macau. The company is building a new report in the Cotai section of Macau and has assured investors that officials will approve the new property, giving his investors a new avenue of growth of in the world's biggest gambling Mecca.

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