What Double Digit Growth Of Macau GGR Means For Wynn?
Wynn Resorts (NASDAQ: WYNN) generates nearly 65% of its revenues from Macau, and this figure is likely to increase further this year. Wynn’s new Wynn Palace casino in the region, as well as Macau’s casino industry rebound in Q1’17, helped grow Wynn’s Q1 revenues by nearly 50%. The growth momentum of Macau’s gross gaming revenues (GGR) have picked up in the last couple of months, and Wynn will be an immediate beneficiary. In addition, the upcoming infrastructure projects will also boost Wynn’s footfall in the coming months. However, despite the short-term gains, Wynn faces risks from its competitors in the long term. LVS is seen as the front-runner for a contract in Japan, which might pose a risk to Wynn’s long term growth. Additionally, MGM’s new casino, which is expected to open in the second half of 2017 in Macau, will further increase the competition in the region, which may dampen Wynn’s growth in the long run.
Wynn’s Short Term Growth Momentum To Continue as Macau Headed For Rebound
In the last four months, Macau’s gross gaming revenues (GGR) have grown in the double digits and the growth rate picked up recently. This, coupled with the new Wynn Palace casino, has led to strong growth in Wynn’s Macau revenues and EBITDA. However, we may also see about a 10% increase in Wynn’s sequential revenues in Q2 due to higher GGR in April, May and summer vacations in June. The primary growth driver of Macau’s GGR growth in the last few months has been the VIP gambling segment. Many VIP players who were not seen for a while after the anti-corruption crackdown are reemerging at VIP tables. Wynn’s profits are likely to increase going forward because VIP gambling usually has higher margins as compared to mass market gambling. The three major infrastructure projects in Macau, namely Pac-On Ferry Terminal, Macau airport expansion and the Hong Kong/Macau Bridge, are expected to be completed soon. This will further boost access to Macau and will likely boost Wynn’s revenues in the short term. Overall, we believe that in the short term, Wynn is headed for a strong year due to its new casino, VIP growth in Macau and upcoming infrastructure projects in Macau.
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International Expansion of LVS and MGM Poses Risk To Wynn
While the short-term growth drivers for Wynn Resorts remain very bright, there may be a number of risks going forward which could dampen its growth in the long term. MGM Resorts will open its new casino in the Cotai strip later this year, which will intensify the competition. Additionally, MGM has a very high dependency on U.S. domestic casinos and is expanding in the U.S. as well. Wynn, on the other hand, has focused mainly on Macau of late, which could pose issues for its growth in the long term.
Wynn Palace has so far performed better than Las Vegas Sands’ Parisian Macau, but LVS is seen as the front-runner in winning a casino contract from the Japanese government. Japan’s casino market is unpenetrated as gambling was legalized just recently, but it is expected to eventually be as much as a $25 billion market. Thus, we believe that if LVS wins this contract, Wynn’s long term growth prospects will be dampened.
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