Casino Stocks Up on Prospects of Legalization of Gambling in Japan - Analyst Blog

Share prices of leading casino operators moved up after Japanese Prime Minister Shinzo Abe reportedly announced plans to legalize gambling in the country before the Tokyo Olympics in 2020. Abe's party will seek to pass the law as a part of a plan to boost tourism before Tokyo Olympics. The next session of the parliament is scheduled to resume in August. Shinzo Abe aims a unanimous vote by the end of the year for the bill that was submitted in Dec 2013.

Shares of leading casino operators like MGM Resorts International MGM, Melco Crown Entertainment Limited MPEL, Las Vegas Sands Corp. LVS, Wynn Resorts Ltd. WYNN and Caesars Entertainment Corporation CZR, who have been eyeing the Japanese market, witnessed an upside following the news.

Japan is one of the largest untapped markets in the world. Currently, gambling is illegal in Japan with the exception of betting on boat, bicycle and horse races. The passing of the bill would make Japan the second-largest market in Asia for gambling after Macau.

All the above mentioned companies are trying to make the most of the opportunity and have plans to invest billions of dollars to build casinos in Japan. MGM Resorts is in discussions with real estate developers and companies for possible partnerships to build gambling resorts with hotels, shopping and entertainment options. On the other hand, Las Vegas Sands has stated that it is ready to invest $10 billion in Japan as soon as casinos are legalized. Another candidate, Caesars Entertainment said a Japan resort would require at least a $5 billion investment and that it would have no problem financing such a project. Wynn Resorts, Caesars Entertainment and MGM Resorts intend to conduct initial public offerings for planned Japan resort ventures to help boost their profiles in the country.

According to CLSA Ltd, a Hong Kong-based brokerage firm, Japan's gambling resort market would generate about $40.0 billion a year from 2025 onwards, once gambling is legalized. This can possibly translate into huge profits and cash flows for these leading casino players.

Moreover, with easing of visa rules, it is expected that tourism will pick up fast in the country and would possibly be at its peak during the Olympics. Moreover, in April, for the first time in 44 years, spending by tourists in the country was more than outlays by Japanese going abroad. In the first quarter, Japan's economy grew 6.7%, beating median market forecast for GDP of 5.6%. This further justifies the decision of the companies to foray into the country.

While MGM Resorts and Wynn Resorts carry a Zacks Rank #2 (Buy), Melco Crown and Las Vegas Sands Corp. hold a Zacks Rank #3 (Hold). However, Caesars Entertainment currently has a Zacks Rank #4 (Sell).

 

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