goconect, die Zukunft hat begonnen

"The traditional major established casino markets of North America, Australia and Europe are now mature and the companies that are based in these markets are now focused globally to secure new growth opportunities," Merrill Lynch's Singapore-based Sean Monaghan says. These opportunities are in Asia, Britain and Eastern Europe - with Asia the most attractive.

For the Australians, Asia offers a double bonus: strong growth prospects and a hedge against the mature, oligopolistic Australian market. Australian governments have capped gaming machine growth, no new casinos are in prospect, and governments are increasingly eroding operators' returns through a combination of harm-minimisation initiatives and higher taxes.

Paradoxically, gaming stocks feature in brokers' recommendations and institutional portfolios.

For a start, they tend to have low gearing, relatively stable revenues and to return lots of cash to investors through high dividend payout ratios and other capital management initiatives. They also benefit from the industry structure. There are only three casino operators of any size (PBL, Tabcorp and Sky City Entertainment); two wagering companies (Tabcorp and Unitab); and one gaming machine manufacturer (Aristocrat). (Stargames and Ainsworth Game Technology are both small, poorly capitalised companies with minimal market shares.)

Australians, according to the Australian Bureau of Statistics, spend 3.5per cent of household disposable income on gambling. Poker machines capture 62per cent of that spending, casinos receive 16per cent, TABs and bookies get 12per cent and lotteries 10per cent.

Aristocrat and Unitab have been among the best performers in the benchmark S&P/ASX200 Index over the past year.

The brokers' verdict:

   * PBL is rated a "buy" by nine brokers and a "hold" by one.

   * Tabcorp has three "buy" recommendations and four "holds".

   * Unitab has five "buys", one "hold" and one "sell".

   * Aristocrat has four "buys", three "holds" and one "sell".

Both of the sells - from the same broker - relate to share price gains, not operational issues.

Even Sky City, licensee of the Auckland, Adelaide and Darwin casinos, which two weeks ago issued its second profit downgrade this year due to smoking bans in New Zealand, is rated a "hold" by four of the five Australian brokers that follow it.

Merrill Lynch analyst Paul Facey, who says he can't find a catalyst for a re-rating and thinks 2007 may be the first year the company can regenerate significant growth, has a "hold" on the stock because it remains a fundamentally sound company whose key Auckland asset is achieving "exceptional" returns. It is returning more than its cost of capital and is paying out "at least 90per cent" of pre-abnormal earnings in dividends.

While the defensive attributes of gaming companies are attractive, it is what is happening north of Australia that puts some real sizzle into their prospects.

Macau, just one year into its trans
formation into what US casino magnate Sheldon Adelson has dubbed Asia's Las Vegas, is now the second-largest gaming market in the world, and will probably be the biggest within one or two years.

Gaming revenue in the Chinese special administrative region grew 44per cent to $US5billion in 2004, overtaking Atlantic City's $US4.8billion and edging closer to Las Vegas, which turned over $US5.3billion last year.

"We do believe that the fundamentals of Macau's gaming industry growth are real, substantial and sustainable," Morgan Stanley's Andrew McLeod says.

Karen Tang of Deutsche Bank, concurs: "We project Macau gaming revenues to achieve an 18per cent compound annual growth rate through 2004-08 to reach $US9.6billion ($12.7 billion), driven by a pipeline of new casinos, improvement in tourist infrastructure, and the continuing strength of the Chinese economy driving tourists and cash into Macau."

What is happening in Macau is spurring a reassessment of gaming across Asia, as countries throughout the region look to emulate the success of various US states over the past 15 years in using revenue from expanded gaming interests to fund a variety of public works and boost tourism and employment.

Singapore, Vietnam, Thailand, Japan, Hong Kong, Myanmar, India and Cambodia are all considering increasing or introducing legal gaming.

To participate in this, PBL last year formed a joint venture with Hong Kong-listed Melco International. The venture is already operating a chain of poker machine parlours and has announced plans to build two new hotel/casino complexes in Macau.

PBL and Tabcorp are also both among the leading contenders to win the right to construct either or both of two new integrated resorts - including casinos - in Singapore. These plans, with a projected combined capital cost of $US5billion to $US6billion, are being championed by the Singapore government as the key to reviving the island's diminishing status as a tourist destination.

Aristocrat is already one of the largest suppliers of electronic gaming machines throughout Asia and has secured a 50 per cent share of the machines in Macau's newest casino, the Macau Sands.

The significance of this is that Macau's traditional casinos eschew poker machines, whereas US-style casinos such as the Macau Sands - and those being built by PBL-Melco - derive up to 65per cent of their gaming revenue from pokies.

PBL-Melco's proposal for a second Macau casino, for example, envisages 3000 pokies and 450 gaming tables.

"Asia remains one of the most significant growth opportunities in gaming throughout the world, buoyed by a large population, increasing wealth and a huge propensity to gamble," Deutsche Bank's New York-based Marc Falcone says.

Monaghan estimates residents of East Asia will spend $US14.5billion in the region's casinos this year, with the Greater China region, including Macau, contributing 54 per cent of this. About two-thirds of the balance comes from South-East Asian countries and one-third from Japan and Korea. As a comparison, the total spending by Australians on all forms of gambling is about $15billion ($US11.4billion) a year.

Apart from Macau, legal casinos exist in Malaysia, the Philippines, Cambodia, Vietnam, India (Goa) and South Korea. Poker machines are installed in more than 100 clubs in Singapore. Macau's gaming revenue is already twice that of all the other Asian land-based casinos.

There are also a number of large cruise ships with extensive onboard gaming lounges, operated by companies like Star Cruises out of ports such as Singapore and Hong Kong.

Clearly, companies that find ways to exploit the blackjack boom are worth a second look. As an investor, you could well get lucky.

four platforms of in excess of 100 million people within the PRC.
The agreement between Horizon and GTP is based on revenue sharing. Revenue for the
Lucky Channel will be derived from game show interactive mobile call and SMS
charges, and sponsorship sales. Negotiations are under way to secure interactive game
show content internationally to complement local Chinese production for the Lucky
Channel. The Lucky Channel is expected to have strong appeal to local as well as
international branded advertisers in view of its expected large interactive audience reach
within the PRC and the right to deliver sports content with the lead up to the Olympic
Games in Beijing in 2008.