Why Is the Cotai Strip Important for Recovery of Macao Casinos?
New resorts on Cotai
The overall casino industry capacity is expected to grow by about 60% by the end of 2016, with key players contributing more than $28 billion in the newly developed Cotai Strip. The Cotai Strip is integral to the casinos’ recovery.
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In May 2015, Galaxy Entertainment doubled its capacity with its two new projects: Galaxy Phase 2 and Studio City. The region also saw the launch of the $3.2 billion hotel complex, Studio City, at the end of 2015.
Wynn Resorts (WYNN) now awaits the opening of its $4.1 billion Wynn Palace while Las Vegas Sands (LVS) is expected to open the $2.6 billion Parisian in late 2016. MGM Resorts (MGM) plans to open its $3.1 billion MGM Cotai at the end of 2016.
SJM’s resort does not open until 2017. Galaxy Phase 3 and 4 may come up in 2018.
Which players stand to benefit?
Casino operators that have opened resorts on the Cotai Strip are gaining market share at the expense of those who haven’t. SJM, which has the highest number of tables, has the third-highest revenue.
In contrast, LVS and Galaxy Entertainment have been gaining share after their resorts opened in Cotai. Melco Crown (MPEL) and Wynn Macao expect to catch up.
LVS, which was the first operator to open an integrated resort, leads the pack in profitability. It enjoys ~39% of the industry’s total EBITDA1 share in 1Q16.
However, the impact of these new resorts will be critical to determining Macao casinos’ success in 2016. Analysts expect WYNN’s new resort to significantly add to its room and operator count. By contrast, Sands China’s new property is expected to have little impact on the operator.
Investors who want to broad-based exposure to the casino industry can consider ETFs that invest in casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).
- earnings before interest, tax, depreciation, and amortization ↩