Macau Gaming Industry Headed For Recovery In 2017

by Trefis Team
+5.87%
Upside
67.79
Market
71.77
Trefis
LVS
Las Vegas Sands
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The corruption crackdown of the Chinese government that started in early 2014, resulted in straight 26-month decline in the Macau’s gross gaming revenues (GGR). However, island’s monthly GGR has been improving since August, and November saw an encouraging double digit growth. The government is promoting non-gambling attractions more suitable to families, and there is a visible shift from VIP gaming to premium mass market gaming. While the landscape may be shifting, there is an opportunity for big casino companies to adapt and thrive. We believe that Macau’s casino gaming market will be headed for growth in the coming quarters.

Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) have recently opened their new casinos on the Cotai strip, which is one of the reasons behind increased visitation in the region. LVS and WYNN Resort’s exposure to Macau is very high, which suggests that a revival in the region’s gaming industry will bode well for them. MGM Resorts International (NASDAQ: MGM), on the other hand, is slightly less exposed to Macau market. However, it is likely to play pivotal role in Macau’s GGR growth due to the expected opening of MGM’s new casino in Cotai strip.

 

Upward Trend in Macau Casino GGR Signals Rebound in the Industry

Macau’s gross gaming revenues (GGR) have been increasing in the second half of 2016 and it grew by about 14.4% in November showing first double digit growth after more than 2 years. While part of the growth can be attributed to the opening of new casinos of LVS and Wynn in Q3’16, double digit growth in November clearly indicates the rebound of Macau casino industry. We have been bullish on the Macau market for the past couple of months and we believe that Macau markets have finally started to grow and it brings in a lot of optimism for the casinos operating in Macau.

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As a result, Macau’s overall casino GGR decline has come down to just 4.3% in 2016 which was close to 12% in the first half of 2016. We expect Macau market to grow further in December driven by increased foot fall in the region due to the new casinos opened by LVS and Wynn in Q3’16. LVS and Wynn have placed special emphasis on mass market gaming, along with alternative revenue sources, in order to reduce risks.  This is evident from their non gambling attractions such as $100 million fountain show and $200 million in artworks at Wynn Palace. Overall, we believe that Macau’s gaming foot fall is all set to grow from here for at least next few quarters and the opening of MGM’s new casino in Cotai strip is likely to maintain the GGR growth of the region.

 

What does it hold for LVS, WYNN and MGM?

We note that LVS has higher direct exposure to casino and gaming revenues compared to MGM and Wynn. We also find that Wynn resorts is highly exposed to Macau market, while MGM has large dependence on Las Vegas strip.

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About 15.3% increase in adjusted property EBITDA of Sands China was primarily the result of improvement in mass market gaming and 19% increase in LVS Macau property visitations in Q3’16 due to its new casino The Parisian. Wynn Palace has witnessed lesser visitations than The Parisian but with double digit increase in Macau market, we expect its revenues to grow in high single digits in Q4’16 due to its high exposure to Macau market. Although, MGM’s exposure to Macau market is less than its peers, its revenues are still expected to see double digit growth in the coming quarters due to its new casino ‘MGM National Harbor’ and improvement in Macau gaming industry. If Macau Industry continues to grow at its current pace, MGM’s growth potential from the region is enhanced as will be opening its new casino on Cotai strip in the second half of 2016.

 

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of Las Vegas Sands, Wynn Resorts and MGM Resorts International.

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