Are the New Integrated Resorts Increasing Macao’s Market?



Increasing market

Macao’s gross gaming revenue growth in the past four months has many analysts believing that the growth is not coming from the cannibalization of existing casinos. They believe growth in the overall market size is driven by the shift to the mass market. Macao’s revenue rose 18.0% YoY (year-over-year) in both February and March, followed by a 16.0% YoY rise in April and a 24.0% YoY rise in May.

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The shift to mass market

After the Chinese government’s crackdown on the VIP[1. very important person] junket business, it became important for Macao casinos to find alternative sources of income. Casinos then built integrated resorts that included theater, street market, adventure rides, magic theaters, retail, and restaurants to attract tourists from Mainland China, referred to as the mass market segment. With margins three times higher than the VIP segment, mass market soon became important.

Las Vegas Sands’ (LVS) new Parisian resort was the first to open in September 2016. It caters to the lower mass market segment. Wynn Palace (WYNN), which soon followed in August 2016, caters to the medium segment. MGM Cotai (MGM) opened in early 2017. SJM Holdings’ resort is expected to open in the fourth quarter of 2017. Galaxy Phase 3 and 4 may come up in 2018.

Wynn gains

Wynn Resorts is emerging as a clear winner in the mass market battle. It has gained market share from rivals Las Vegas Sands (LVS), Galaxy Entertainment, and Melco Crown Entertainment (MPEL). MGM Resorts is also gaining market share. The impact of new resorts will be critical when determining the future growth of Macau casinos.

Investors can gain exposure to casino stocks by investing in the iShares US Consumer Services ETF (IYC), which invests 1.6% of its portfolio in casinos.


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