Crown Resorts Ltd (ASX: CWN) held its Annual General Meeting (AGM) on Wednesday and provided the market with an interesting update.
The global casino and resort operator has faced a challenging 18 months as its joint venture project in Macau has continued to perform well below expectations.
There is one question the market will no doubt be pondering at the moment – Is the worst over in Macau?
It is a difficult question to answer and one that very few people can answer with certainty. Even Crown's management have not been able to determine when conditions in this important gaming market will begin to improve.
Despite this, Crown has shown its resilience in the domestic gaming market and retains an extremely impressive pipeline of new projects to be constructed over the short-to-medium term.
Some of the most interesting points from Crown's AGM included:
- For the period 1 July to 18 October 2015, revenues from Crown's Australian gaming floor operations (excluding VIP program play revenue) increased by 10% compared to the previous corresponding period. In addition, non-gaming revenue grew by 1%. This is a very solid result considering domestic consumer sentiment has been soft for the most part of the year and Crown's operations in Perth will have been affected by the slowing of the mining boom.
- The conditions in Macau have remained soft and the Macau market has continued to see year on year declines in gross gaming revenue, consistent with the second half of FY15. Although this is disappointing, it was not entirely unexpected. The Macau gaming market is entering its seventeenth consecutive month of decline versus corresponding periods, but Crown believes this is still the most important gaming market in the world over the long term. Management reminded investors that the Macau gaming market is still around five times the size of the market in Las Vegas and that last year Macau accommodated 31.5 million visitors. There has been some recent positive news out of China however, with the government considering policies to help support the Macau economy. This has helped Crown's share price bounce off its lows but information regarding these new initiatives is yet to be seen.
- Crown's pipeline of new developments remains robust with its latest Melco Crown resort, Studio City in Macau, set to launch next week. The company also has a number of other world class projects currently being constructed and planned including a network of luxury six-star hotels in Australia comprising of Perth Towers, Queensbridge Hotel Tower in Melbourne and Crown Sydney.
- As the graph below shows, the size of China's outbound tourism market is forecast to increase by more than 85% over the next five years.
Source: Crown AGM Presentation
This will not only be a positive for the Macau gaming market, but also for the Australian gaming market. The number of tourists travelling from Asia has increased dramatically over recent years and many of them travel to Crown's properties for accommodation and entertainment. The effect of this has also been witnessed by Sydney casino operator Echo Entertainment Group Ltd (ASX: EGP). Echo has benefited from the surge in tourists travelling to Sydney from all over the world and this is likely to continue with the Australian dollar expected to fall further over the medium term.
Foolish takeaway
Despite continued weakness in Macau, Crown's trading update was fairly upbeat and the investment proposition remains fairly robust. The long term growth outlook remains positive and at some stage, conditions in Macau will return to growth. Crown will benefit from the wave of new tourists out of Asia and it appears this is already occurring in the domestic market.
With the shares currently trading at below $12, I think Crown is a fairly safe bet for long-term investors who want exposure to some of the best gaming and entertainment assets in the world.
