Dan Wasiolek: Wynn Resorts share price has lost recently, as concerns over slowing Chinese economic growth weigh on the company, given 75% of its EBITDA is generated from Macau, the only place in China were gambling is legal. While such economic slowdown would result in reduced Macau revenue growth for Wynn in 2019, we believe the pullback in shares presents an attractive opportunity for investors to gain exposure to an industry with strong long-term supply and demand characteristics.
Gaming supply in Macau is limited to just six licenses, of which Wynn has one. Meanwhile, demand for gaming in Macau is well supported by only 2% of China's 1.4 billion population visiting the region this year, a figure well below the 12% of U.S. citizens traveling to Las Vegas in 2018, and one set to expand along with country's growing middle income class. Also, the Chinese government desires Macau to become a world destination resort, supported by multibillion dollar infrastructure investments.
As a result, we see both Wynn and Macau industry revenue growth averaging around 6% annually long term, while Wynn expands its EBITDA margin in the region to 31% in 2027 from 28% in 2017. With shares trading at a meaningful discount to our $161 fair value estimate, we think shareholders should place their bets.