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Slow but Steady Gaming Revenue Growth for Macau

Dan Wasiolek

Dan Wasiolek: When it comes to gambling, many first think of Las Vegas, but there is another enclave of casinos in Macau, located near China, which had $28 billion in gaming revenue last year; more than four times that of the Las Vegas Strip.

Driven by government policies, Macau's gaming revenue has been in decline since the middle of 2014. Recently, growth has stabilized as new casinos begin to open. We expect a gradual improvement in Macau growth to occur in 2017 as additional casinos open, but we don't see a meaningful pickup in growth until 2018, when key infrastructure projects start coming online that alleviate Macau's congested streets. Macau is the world's most densely populated country, and we believe that this congestion has capped its carrying capacity at 33 million, and as a result visitation will only be able to grow around 2% in both 2016 and '17. However, as development projects open we believe that visitation and gaming revenue growth can accelerate to a sustained midsingle digit annual rate for several years.

We see narrow-moat Wynn Resorts as well-positioned to benefit from Macau's long-term growth, and think investors should consider its shares, which are trading at a meaningful discount to our fair value estimate.