The odds for a recovery at Macau casino in 2015 may be getting better, which would be a great relief for Crown Resorts Ltd (ASX: CWN). In early 2014, Crown's joint venture integrated resort City of Dreams brought in the bulk of earnings for the Australian company when domestic casino traffic and revenue was weak.
Yet then the Chinese government's anti-corruption crackdown spoiled VIP player income for all of the casinos in the Macau gambling destination. Crown's stock slid for most of 2014.
Investors may be seeing this as a good entry point to snap up stock with a mid-term view on business expansion. Here's why the outlook is starting to change and Crown's fortunes may be improving.
Total Macau visitor numbers to rise
The Macau government tourism office reported an expected increase in the number of total visitors to the island. Macau is the only area in China where casinos can legally operate. Although the earlier crackdown was more focused on high roller VIP players, the number of average mainstream players and tourists in general is still rising. 33 million visitors are projected for 2015, up from 31.5 million recorded in 2014.
These players may stay fewer days and spend less on average than VIPs, but their volume can still push revenues up.
The new Studio City to attract more tourists
James Packer, the head of Crown Resorts, is developing and heavily promoting a movie-themed integrated resort which is more oriented toward tourists coming for entertainment and leisure. Named Studio City, this resort is scheduled to open later this year, so as its City of Dreams venue is changing to cater to more mainstream players, the new resort could give revenues a boost.
Macau casino stocks bottoming out
Recently, US-based CNBC business website reported some analysts see the casino stocks with Macau venues as bottoming out. Revenues may still be off compared to pre-crackdown levels, but the news has been "baked into" the discounted stocks. Crown's joint venture company Melco Crown Entertainment Ltd followed Crown down in share price through 2014. International bank Barclays was reported to have an overweight rating on Melco Crown as it looks towards an expected revenue increase from Studio City to lift the stock. Crown Resorts owns a third of Melco Crown, so it would benefit from any earnings growth.
It may take some time for Crown Resorts to return to previous share price highs, but time is the friend of the investor, so I would suggest putting Crown Resorts high on your watchlist if it isn't there already.
