Las Vegas Sands, Wynn Resorts Projected to be Winners as Macau Rebounds in Second Half of 2020

Posted on: December 17, 2019, 07:32h. 

Last updated on: December 17, 2019, 08:27h.

Todd Shriber @etfgodfather Read More

Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Investors looking to prepare for a possible rebound in Macau’s gross gaming revenue (GGR) in the back half of 2020 can do some early shopping by considering two of the peninsula’s biggest operators – Las Vegas Sands (NYSE:LVS) and Wynn Resorts (NASDAQ:WYNN).

The two gaming equities are already reflecting the market’s optimism for a bounce back year in the Chinese territory. On news that the US and China inked Phase I of a trade deal last week, shares of LVS are up 6.12 percent over the past week, while rival Wynn is higher by 8.76 percent. The pair own seven of Macau’s gaming properties.

That price action could be suggesting that stocks are already baking-in a Macau recovery at some point in 2020 following mostly disappointing GGR results this year. The Macao Government Tourism Office (MGTO) recently said visits to Asia’s top gaming destination won’t exceed 40 million this year and that the first half of 2020 could be sluggish, too.

We are projecting Macau GGR growth to be back-half-weighted in 2020, with aggregate GGR growing 3.6 percent year-on-year,” Deutsche Bank analyst Carlo Santarelli in a new research note.

Expected stability among VIP gamblers, a key segment for Wynn, in the latter stages of 2020 could provide a boost to Macau operators, because with this year’s weakness in that demographic, comparables will be easier to top in 2020, according to the analyst.

Mixed Data

Wynn, which operates the Wynn Macau and Wynn Palace, recently forecast higher earnings before interest, taxes, depreciation and amortization (EBITDA) and revenue for October on the peninsula, citing a significant increase in table games percentage.

That’s a positive sign to be sure, but Macau operators are likely to report challenges in November and December due to declining visits. November was the worst month of the year for GGR in the Special Administrative Region (SAR) and just over halfway through December, some analyst believe this month’s data are on pace to be worse than the prior month.

As headwinds such as the US/China trade spat and visa controls abate, operators with heavy mass market and VIP exposure could benefit in the back part of 2020, said Santarelli. LVS and Wynn check those boxes.

“With limited new supply in 2020, we expect shifts in operator EBITDA, market shares to be more related to the performance of – and relative exposure to – the mass and VIP gaming channels,” said the analyst.

Supply Matters

Guestroom supply is running at a deficit relative to demand in Macau, with Wynn executives previously saying they’ve had to turn guests away. That scenario may not clear up much in 2020, but it is expected that most of the SAR’s new room stock in 2020 will come courtesy of LVS.

Given the redevelopment activity at Sands Cotai Central throughout the majority of 2020, we anticipate net new room growth is likely to remain relatively subdued, over the course of 2020,” said Santarelli.

The analyst added that LVS will bring the 290-room addition at the Four Seasons Towers online next year.