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Can New Resorts Lead the Way in Macao Casinos’ Recovery?

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Wynn contributes to August recovery

Wynn Resorts (WYNN) opened its $4.1 billion Wynn Palace on August 22, 2016, and this may have directly contributed to Macao’s casino industry recovery in August.

In May 2015, Galaxy Entertainment doubled its capacity with two new projects. The region also saw the launch of the $3.2 billion hotel complex, Studio City by Melco Crown Entertainment (MPEL), at the end 2015. These projects were expected to attract more mass-market visitors and help in Macao’s recovery, but they did not.

Given this, analysts are divided on whether WYNN actually contributed solely to the recovery. Its 15% YoY increase in average daily revenue in the last ten days of August (the same time as Wynn Palace was opened to public) supports this affirmation.

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New resorts lined up

Meanwhile, overall industry capacity is expected to grow by about 60% by the end of 2016, with key players contributing more than $28 billion in new developments on the Cotai Strip. This could explain why the Cotai Strip is integral for casinos’ recovery.

Las Vegas Sands (LVS) is expected to open its $2.6-billion Parisian in September 2016, and MGM Resorts (MGM) will open its $3.1 billion MGM Cotai at the end of the year. SJM’s resort does not open until 2017, and Galaxy Phases 3 and 4 could come up in 2018.

How critical are new resorts?

The impact of new resorts will be critical in determining Macao casinos’ success in 2016. Analysts expect WYNN’s new resorts to add significantly to its room and operator count. Also, given the belief that WYNN’s properties are the best in its class, aspirational properties will add to its revenues and profits. By contrast, Sands China’s new property is expected to have little impact on the operator.

In any case, the combined effect of both these new resorts is expected to continue the positive revenue trend in September. Investors seeking diversified exposure to casino companies may be interested in ETFs that invest in casino stocks, like the VanEck Vectors Gaming ETF (BJK). Investors can also invest in the WisdomTree Dividend ex-Financials Fund (DTN), which holds 2% in LVS.

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