The Lower House of Japan's parliament, the Diet, on Tuesday passed a bill to allow "integrated resorts." That's Asia's euphemism for casinos, which still meet with much resistance from critics who say there's not enough done to tackle problem gambling and money laundering.
Some lawmakers walked out of the Lower House debate in disgust. But the scheme, a cherished baby of Prime Minister Shinzo Abe, now has a lot of momentum, and passed in less than 15 minutes.
The bill, which has been years in the making, now moves to the Upper House of Japan's parliament. Although there will be another squabble, Abe's Liberal Democrat Party has a strong majority in that house, and it should also pass quickly there.
That means the bill should become law by the end of this year, specifically the end of the Diet's session on Jan. 14. But it will likely take until 2023 before the first casino resort opens. Abe views the move as a way of sustaining tourism gains after the 2020 Tokyo Olympics.
International casino operators, such as Caesars Entertainment (CZR) , Genting Singapore (GIGNY) , Las Vegas Sands (LVS) , MGM Resorts International (MGM) and Wynn Resorts (WYNN) , have been jostling for four years to land bids to build the resorts. Japanese travel-agent and resort operator H.I.S. (T:9603) has also been vocal in its support, although most Japanese companies have been reserved about prospects, fearing a backlash.
Japanese companies making games related to gambling, such as ATM and casino-game maker Japan Cash Machine (T:6418), slot-machine maker Konami (KNMCY) and arcade-game and pachinko-machine maker Sega-Sammy (SGAMY) , could get a long-term boost.
Japan allows cash payouts from pachinko machines, a kind of cross between a slot machine and a children's toy that drops a metal ball down a series of pins. Certain destinations produce a win -- paid offsite to skirt the laws.
Horse racing is also a major industry, and Japan has produced many a champion in the biggest-money international races. Lotteries and even boat racing are also legal for gambling.
The Nikkei said that the main local governments that are looking to attract casinos are led by heavyweights Yokohama, near Tokyo, and Osaka. But Kushiro City, Tomakomai City and Rusutsu Village, all on the northernmost main island of Hokkaido, are all likely participants, as well as Sasebo City in Nagasaki Prefecture.
The U.S./Macau companies such as Wynn and the Sands have an upper hand because they have created "integrated resorts" in Singapore -- or, in the case of Wynn, the flagship properties in Macau that Abe would like to emulate.
Nomura's analysts believe that Genting Singapore, which has developed a top-notch resort in that city, will likely bid for a project. They expect a sharp 52% growth in earnings per share for the company for 2017. But they are neutral on the stock, regardless, noting that it already trades at 31x earnings, making it pricy. It has run up close to 35% since November, when it became clear the casino bill was gaining momentum.
Genting Malaysia (GMALY) , a separate listing, looks a better bet to the investment bank, since it is expanding its Genting Highlands resort in Malaysia's Southern Highlands. It also has a mass-market approach that does not rely too heavily on Chinese "whales."
