For those of you who think Macau is something used to pull a plow, here is a little background. Macau is an island 37 miles southwest of Hong Kong, the gaming Mecca of Asia for over forty years. Gross gaming revenue in 2003 was $3.5 billion; that number rose to $5.6 billion in 2005. Given this kind of growth, Macau gaming revenues could easily exceed $10 billion by 2010.
The Wynn Macau was planned as a multi phase project, but in a recent press release the company stated that only a portion of the expected expansion would be open by the end of 2007; the remainder will open at management’s discretion. The problem? China’s decision to further restrict visa requirements to Macau from Guangdong province creates a certain level of uncertainty. We add to that a Venetian property and an MGM property both opening in Macau this year and the management’s decision becomes clear; they are worried… or are they?
Wynn Las Vegas and Wynn Macau operating results have significantly exceeded expectations in Q1 and Q2 of this year. This trend is expected to continue.
The Board of Directors, in the same press release as the expansion delay, has authorized a stock buyback of $1.2 billion. Oddly, the stock is down more than 17% since its highs this year.
The Chinese government has shown dedication over the past 40 years in making Macau a resort destination, so why would they now restrict visa requirements to the island? Even at just face value this sounds more like a cash issue than China using its muscle to crush Western expansion. The government sees the growth and investment in the area and, hey, they have been all for it. The visa measure has nothing to do with preventing tourists from spending hard-earned cash and will have little effect on casino profits. Its intent is to prevent Chinese visitors from working in Macau illegally. If it turns out that it unintentionally restricts visitors you will see a quick turn around from the Chinese government, since, after all, it hurts their pocket, too.
It seems that the wait and see attitude of management is the right step, due more to the opening of rival casino operations than the visa issues. The correct timing of the expansion makes sense relative to the other casino openings since the added excitement timed correctly may keep customers attached to the Wynn name rather than allowing them to venture to the newly added properties. At these price levels and the benefit of the buy back, Wynn looks very attractive. If Wynn continues south, support will be in the low 90’s with an upside to above 105.
WYNN 1-yr chart