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Why the Cotai Strip Is Important for Macao Casinos’ Recovery

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Mar. 29 2016, Updated 7:06 p.m. ET

New resorts on Cotai

All of the new integrated resorts discussed in the previous article are being built on the Cotai Strip. Eight new mega projects are being planned on the strip.

In May 2015, Galaxy Entertainment doubled its capacity with two new projects, Galaxy Phase 2 and Studio City. The region saw the launch of the $3.2 billion Studio City hotel complex last month.

Wynn Resorts (WYNN) also awaits the opening of its $4.1 billion Wynn Palace, while Las Vegas Sands (LVS) is expected to open its $2.6 billion Parisian in late 2016, and MGM Resorts (MGM) is expected to open its $3.1 billion MGM Cotai at the end of the year. SJM Holdings’ resort will not open until 2017.

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Cotai resorts prevail over table count

Cotai’s importance can be gauged by two factors: revenue dominance and profit dominance.

Casino operators that have opened resorts on the Cotai Strip are gaining market share at the expense of those who haven’t. SJM boasts the highest number of tables and has the third-highest revenue. LVS and Galaxy Entertainment have been gaining market share after their resorts opened in Cotai. Melco Crown (MPEL) and Wynn Macao are also catching up.

SJM’s mass market share fell from 40% in 2011 to 20% in 4Q15. LVS’s share stands at 28%, marginally lower than a year ago, while Galaxy’s and Melco Crown’s shares have risen to 18% and 17%, respectively.

Also, LVS was the first to open an integrated resort, leading the pack in profitability. It enjoyed 39% of the industry’s total earnings before interest, tax, depreciation, and amortization in 4Q15.

The impact of new resorts will be critical in determining Macao casinos’ success in 2016.

Investors who want to avoid the risk of investing in a single casino company may invest in ETFs that invest in casino stocks. These include the VanEck Vectors Gaming ETF (BJK) and the Consumer Discretionary Select Sector SPDR ETF (XLY).

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