Prominent casino operators like Wynn Resorts (NASDAQ:WYNN), Las Vegas Sands (NYSE:LVS), MGM Resorts International (NYSE:MGM) and SJM (HKG:0880) have recently shown high volatility due to their dependence on Chinese economic growth prospects. China’s economy grew 9.1% in Q3 2011, down from 9.5% in Q3 2010, which is considered a slow down. The Macau region contributes approximately 60% to Wynn’s net revenues, and on slowdown fears, Wynn’s stock has fallen to a low of $110 in early October from the July highs of $165 a share. Recently, Wynn’s share prices have recovered and crossed $130 mark. However, we still believe they remain in the volatile zone with the fulcrum around the Chinese growth prospects.
Our price estimate for Wynn Resorts stock stands at $130, which is in line with the current market price.
Macau Casino Industry Driven By Chinese Customers
According to analysts, Chinese economic growth is slowing down. China is expected to bear the brunt of the European Crisis as it is the biggest exporter of goods to the European Union, had exports of approximately $380 billion in 2010.
- Macau’s economy is based primarily on tourism, specifically casino industry. China is the major contributor to the gaming industry in Macau.
- Gaming customers traveling to Macau typically come from nearby destinations in Asia. According to the Macau Statistics and Census Service Monthly Bulletin of Statistics, approximately 87% of the tourists who visited Macau in 2009 came from Mainland China, Hong Kong and Taiwan.
- Since Macau is a Special Administrative Region (SAR) of China and geographically closer than Singapore, the other major Asian gaming hub, this makes it easy for Chinese visitors to come to Macau.