Opinion | Macau rolls the dice on China’s luxury renaissance

The days of President Xi Jinping’s austerity drive in China are rapidly fading. Homes in Shenzhen now cost more, per square meter, than they do in Japan.

Kweichow Moutai Co., maker of the most-prized brand of baijiu sorghum liquor, looks set to overtake Diageo Plc soon as the world’s biggest distiller by market value, despite having less than one-third the revenue of the maker of Smirnoff and Johnnie Walker:

Sales of luxury cars hit a record last September, and high-end brands in Europe have noticed a surge in domestic spending as Chinese start doing more of their conspicuous consumption in local stores and online, rather than opening their wallets only when traveling to Japan, South Korea or Hong Kong.

Sales in China rose 14 percent in the six months through December, LVMH Moet Hennessy Louis Vuitton SE Chief Financial Officer Jean-Jacques Guiony said on an investor call in January. There’s been “a much higher appetite for our industry generally since the second half,” Hermes International SCA Chief Executive Officer Alex Dumas told reporters in February.

That’s hard to square with an austerity drive. A crackdown on lavish spending by Chinese officials might drive consumption toward less visible products, such as overseas real estate and private wine cellars — but it’s hard to conceal your ownership of Louis Vuitton luggage or Birkin bags.

The new gilded age has been making its presence felt in Macau in the nick of time for the territory’s casinos. Just 18 months ago, the industry was in turmoil. After spending billions building resorts to service a wave of high-rolling mainland gamblers, moguls were told that Macau wanted to develop a mass-market clientele of families and conference delegates instead, and would be approving fewer table games as a result.

Steve Wynn, whose Bellagio hotel helped drive Las Vegas to new heights of luxury, was driven to impolitic rage by the situation, describing the activity of the territory’s regulators as “outrageous and ridiculous.”

“The table cap is the single most counterintuitive and irrational decision that was ever made,” he told investors on an October 2015 call. “The reason that these extraordinary non-gaming attractions exist is because the damn casino is the cash register.”

That hasn’t altogether changed. Macau had 30 percent more hotel rooms at the end of December than it did two years earlier, but only 10 percent more gaming tables.

Still, the money has come flooding back. Revenue from casino games in March rose 18.1 percent from a year earlier, the fastest pace since February 2014, when Lunar New Year wagers drove it to an all-time record of 38 billion patacas ($4.75 billion).

The top end of town is outperforming, too. After tracking close to mass-market revenues for the past two years, high-rolling VIP gamblers are pulling ahead, according to Bloomberg Intelligence estimates. Shares of Wynn Macau Ltd. are trading HKD1.55 above analysts’ target price, the biggest such premium since January 2014.

All six of Macau’s casino companies are now among the top 10 most richly valued large casino businesses on a price-earnings basis, and Macau businesses take the top four places if you adjust for indebtedness by comparing Ebitda to enterprise value.

That leaves Wynn Macau little scope for slip-ups when it reports first-quarter earnings. Those who heeded Gadfly’s prediction of a revival last July have done pretty well over the past nine months, but every good gambler knows to quit while they’re ahead.

The territory’s future looks more sustainable now than it has in three years. For astute players, that’s probably a good time to trim positions. David Fickling, Bloomberg