By Robert Fenner
Feb. 2 (Bloomberg) -- Asian gaming stocks, industry laggards last year, are setting records as investors bet on new casino projects in Macau and Singapore.
Shares of Malaysia's Genting Bhd., the builder of Singapore's second casino, and Australia's Aristocrat Leisure Ltd., the world's second-largest slot-machine maker, are each up more than 40 percent in the past 12 months.
Even after their gains, Asian casino stocks are less expensive relative to earnings, on average, than are such U.S. gambling companies as Las Vegas Sands Corp. and MGM Mirage. They are set to catch up, said Charles Norton, who manages the $70 million Vice Fund in Addison, Texas.
``One of the reasons why we like the gaming sector as much as we do is just Asia,'' Norton said. The fund buys alcohol, tobacco and firearms stocks along with gaming companies. ``It's an enormous driver.''
He holds shares of Melco PBL Entertainment (Macau) Ltd., a partnership between Australia's Publishing & Broadcasting Ltd. and Melco International Development Ltd. that is building Macau casinos.
The eight gaming stocks in the Morgan Stanley Capital International Asia-Pacific Index had an average increase of 21 percent last year. The USA Index, composed of six gaming stocks, posted an average gain of 57 percent last year.
Still Cheap
Macau, the former Portuguese enclave that reverted to Chinese control in 1999, passed the Las Vegas Strip as the world's biggest gambling market in 2006. Genting last month said it planned to build a casino in Macau. The 28-square-kilometer (11-square-mile) area is the only place in the world's most populous nation that allows gambling on games of chance.
U.S. gaming shares benefited last year from Asia casinos. Las Vegas operator Steve Wynn, MGM Mirage's Kirk Kerkorian and Las Vegas Sands' Sheldon Adelson capitalized early on the demand in Macau. American companies began opening gambling houses after Hong Kong billionaire Stanley Ho in 2004 lost his four-decade monopoly to operate casinos in Macau.
The 10 biggest gaming companies in Asia by market value sell on average for 19.4 times earnings. The 10 largest U.S. casino owners trade at an average of 34.9 times earnings, excluding Wynn's Wynn Resorts Ltd. Its value is 5,395 times because the five-year old company was not profitable until 2006. Wynn Resorts will open a $1.2 billion Macau casino this year.
Too Many Casinos?
Macau's gaming regulator said Jan. 23 that revenue surged to 55.9 billion patacas ($6.95 billion) in 2006, a 22 percent gain on the year earlier. In the U.S., Nevada has yet to release full- year figures for Las Vegas's revenue. Morgan Stanley estimates the Las Vegas strip's 2006 gaming revenue at $6.5 billion.
The possibility that China might relax gambling restrictions elsewhere in the country could hurt the industry, said Matt Hoult at ABN Amro Asset Management. Other risks include rising costs for building and maintaining the casinos and competition among operators opening new venues.