HONG KONG (Dow Jones)--Wynn Macau Ltd. (1128.HK) on Tuesday set the tone for another strong earnings season for casino operators with a presence in Macau, where gambling revenue growth has been on a tear for the past two years.

The Wynn Resorts Ltd. (WYNN) unit said its second-quarter adjusted property earnings before interest, taxes, depreciation and amortization--a measure widely used to evaluate the performance of gambling companies--rose 45% to $314.3 million from $216.2 million in the second quarter of 2010. The result beat the consensus estimate of $310 million, according to JP Morgan.

"We expect others to see similarly strong quarters that could drive earnings expectations and stock prices higher," Morgan Stanley analyst Praveen Choudhary wrote in a report Tuesday.

Wynn's solid performance was fueled by rapid gambling revenue growth in Macau--gambling revenue rose 45% from a year earlier in the January-June period, following a 58% surge for the whole of last year. The only place in China where casino gambling is legal, Macau overtook the Las Vegas Strip as the world's biggest gambling market in 2006 and is poised to rake in five times the Strip's gambling revenue this year.

Macau's gambling revenue growth, particularly in the high-roller segment, is primarily driven by liquidity outflows from China, Credit Suisse analyst Gabriel Chan wrote in a report Monday. He said China's real interest rate peaked in July 2009 and turned negative in February 2010 amid surging inflation, while Macau's gambling revenue growth accelerated.

"The negative interest rate environment and limited investment opportunities in China are driving liquidity outflow to (seek) higher return overseas, with the Macau gaming market, through the junket system, being used as a window," he said. Junkets are the middlemen who bring customers to casinos, extend them credit and collect debt.

Wynn's fellow U.S. casino companies Las Vegas Sands Corp. (LVS) and MGM Resorts International (MGM) are forecast to post strong growth at their Macau properties for the second quarter, while a Las Vegas recovery remains uncertain. Sands China Ltd. (1928.HK) is Las Vegas Sands's Macau unit. MGM Resorts has a joint venture with a daughter of Macau kingpin Stanley Ho called MGM China Holdings Ltd. (2282.HK), which debuted on the Hong Kong stock exchange last month.

Stanley Ho's SJM Holdings Ltd. (0880.HK), the market's largest operator with about one third of the territory's gambling revenue; Melco Crown Entertainment Ltd. (MPEL), a joint venture co-chaired by Ho's son Lawrence and Australian James Packer; and Galaxy Entertainment Group Ltd. (0027.HK), controlled by the family of Hong Kong tycoon Lui Che Woo, are also forecast to report strong results, which will trickle out through the end of August.

Wynn Macau, which operates an eponymous property located on Macau's peninsula, is planning to build a casino resort in the territory's fast-growing Cotai area, home to Sands China's massive Venetian Macao and the territory's newest casino resort which opened in May--the Galaxy Macau. It will have 500 gambling tables and 1,500 hotel rooms, Chairman Steve Wynn said during Wynn Resorts' earnings call. But the local government has yet to grant the company land rights for the project.

Choudhary said the "limited visibility on approval" renders the company "constrained for growth," prompting the house to retain its equalweight rating on the stock.

Wynn Macau's net profit for the three months ended June 30 was $120.33 million, down from $132.52 million a year earlier, according to international financial reporting standards. The figure was hit by a $107 million charge representing the present value of a charitable contribution made to the University of Macau Development Foundation.

Operating revenue rose 37% to $976.51 million in the second quarter from $714.41 million a year earlier.

The company didn't recommend a dividend.

Wynn Macau's Hong Kong-listed shares ended 1.1% lower at HK$26.15, in line with a decline in shares of most Macau companies.

-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002; kathryn.okeeffe@dowjones.com

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