Galaxy’s StarWorld Casino to Pose Another Threat to Stanley Ho (Macau)

Bloomberg October 18, 2006

Galaxy’s StarWorld Casino to Pose Another Threat to Stanley Ho

By Kelvin Wong

Oct. 18 (Bloomberg) — Galaxy Entertainment Group Ltd. opens its StarWorld casino in Macau tomorrow, posing another threat to Stanley Ho’s dominance in the city’s gaming industry six weeks after Wynn Resorts Ltd. opened a $1.2 billion hotel-casino.

Galaxy, controlled by Hong Kong construction tycoon Lui Che- woo, says it has almost tripled its share of Macau’s casino gambling market to 20 percent in August from 7 percent in January after opening three casinos earlier this year. StarWorld will help it win 25 percent of the market, Lui said last month, without forecasting when that target would be met.

Macau is poised to overtake the Las Vegas strip as the world’s largest gaming hub in revenue as casino operators bet on the rising incomes of China’s 1.3 billion people will boost tourism. Ho’s four decade-monopoly of the gaming industry in the only Chinese city where casino gambling is legal ended in 2002.

Ho “is looking at a two-front battle,’ said Gabriel Chan, a Hong Kong-based analyst at Credit Suisse, in a phone interview yesterday. “Foreign operators and Galaxy represent different challenges, one in the expanded mass market and one in the traditional VIP market.’

Las Vegas Sands Corp., the world’s biggest casino operator by market value, had about 20 percent of Macau’s gaming market in the first half, JP Morgan analysts Billy Ng and Steven Li wrote in a report published August 3.

Wynn Resorts, controlled by tycoon Stephen Wynn, opened its first casino in Macau on Sept. 6. The casino took in about $900 million in chip sales in its first 13 days of operation, the Las Vegas Sun said in an Oct. 1 report, quoting Wynn.

`Defining Moment’

Ho has blamed the competition for pushing a third of his casino unit’s 150 VIP gaming halls to the brink of bankruptcy, the South China Morning Post reported on Aug. 12. Ho’s Sociedade de Jogos de Macau SA, or SJM, owns of 16 of the 22 casinos in the territory.

“If you look at SJM’s existing casinos, none of them comes close to StarWorld in terms of facilities and the physical setting,’ said Galaxy’s vice chairman, Francis Lui. “Those casinos were either built before the 1980s or converted from office buildings, usually with poor ventilation and lighting.’

StarWorld, Galaxy’s fifth casino in the former Portuguese colony, targets Macau’s mid-range gaming market, which has surged since the opening of Sands Macao, the city’s first Las Vegas- style casino, in 2004, Lui said. StarWorld’s opening “will be a defining moment for our group,’ he said.

Cotai Strip

Macau’s gaming revenue reached $3.1 billion in the six months to June, more than during the entire year of 2002, according to figures posted on the city’s Gaming Inspection and Coordination Board Web site. The Las Vegas Strip collected $3.3 billion in gaming revenue in the same period, according to the Nevada Gaming Control Board.

Galaxy has invested HK$2.5 billion ($320 million) building the 290-gaming table StarWorld, which is next door to Wynn Macau and a block away from Ho’s flagship Lisboa casino on the Macau peninsula.

“Even though Galaxy may not have as strong a brand name as Wynn, the location will help them,’ Ken Yeung, a Hong Kong-based analyst at BOCI Securities Ltd., said in a phone interview yesterday.

On the Cotai Strip, a reclaimed strip of land under Macau governance, Las Vegas Sands Chairman Sheldon Adelson plans to build as many as 60,000 hotel rooms in seven to 10 years. Las Vegas Sands is scheduled to open the 3,000-room Venetian Macao on the strip in 2007’s second half.

Ho’s New Casino

Macau’s September gaming revenue has probably risen 35 percent compared with a year earlier, the Macau Daily newspaper reported on Oct. 3, without citing anyone. Gaming revenue may grow 21 percent to $7 billion this year, according to a July 18 Morgan Stanley report.

Ho is investing 2 billion patacas ($250 million) to build the Grand Lisboa, a 40-story, 800-room casino scheduled to open early next year.

“If the Grand Lisboa can’t help him gain back some of the lost market share, it may mean real trouble,’ said BOCI’s Yeung.

Galaxy’s Lui Che-woo says he plans to spend $1 billion in Macau by 2008. The company plans to build the 4.7 million square foot Galaxy Mega Resort on the Cotai Strip.

Galaxy, which changed its name from K. Wah Construction Materials Ltd. in October last year, posted a first-half loss of HK$734 million, compared with a profit of HK$14.3 million a year earlier, after its financing costs surged.

Shares of the company rose 0.4 percent to HK$7.26 in Hong Kong yesterday. The stock has surged 66 percent this year, compared with the 21 percent gain in the benchmark Hang Seng Index.