Gambling stocks surged yesterday on the news that the Macao government isn't going to issue new casino licenses and is freezing land allocations for casinos.

The policies directly affected gambling-related stocks, including license holders Galaxy Entertainment and Melco International Development.

Melco International Development, controlled by casino tycoon Stanley Ho's son Lawrence Ho, soared 5.5 percent to close at HK$10.70 despite the news that one of the company's institutional investors is selling 31.8 million shares at HK$10.10 apiece.

A report from Goldman Sachs gives a "buy" to the company with target price of HK$14.

The report said the government not issuing any new licenses is within expectations, but the suspension in land supply could lessen the furious competition among players.

It added that the VIP room turnover of Crown Macau, the casino under Melco International Development, remains strong.

"The stock is substantially undervalued with a 33 percent discount against its net asset value, which is very attractive," Goldman Sachs said.

However, the report offers doubts about the profitability of the company's City of Dreams project, which is under development.

"The project targets the general public. Its operations might encounter difficulties in the sense that the mass-gaming market has lagged behind the high-end market over the past 12 to 18 months," the report says.

Galaxy Entertainment, which owns five casinos in Macao via its subsidiary Galaxy Casino, went up 13 percent to close at HK$5.60 yesterday.

Macau Success, which owns the casino-resort mixed project Ponte 16, rose 1.94 percent to HK$1.05. Another casino runner, A-Max Kepo Display, soared 17 percent to HK$0.79.

Karl Thomson Securities Chief Portfolio Strategist Patrick Shum said the gaming-stock craze is short-lived.

"The mandate is positive to the industry. The market will consolidate by squeezing out small players, which will help increase the market shares of the six giants," he said. "However, their capital expenditure remains very large because of the investment of their preliminary infrastructure."

(HK Edition 04/24/2008 page3)