Across The BorderMacau’s new casinos likely to fall short when it comes to improved profitability

The new casinos opening in Macau are likely to fall short of their own expectations for gradual improvement in profitability amid the ongoing weak market, say market watchers.

Wynn Resorts’ US$4.2 billion Wynn Palace, the most expensive property owned by billionaire Stephen Wynn, opened on August 22 while the US$2.7 billion Parisian Macao from rival Sands China is scheduled to debut on September 13.

“We expect that the opening of Wynn Palace will help launch a new era of prosperity for Macau, attracting more international tourists to the city,” said Wynn.

However, casino analysts are cautious on the company’s expectation. “The forecasts for incremental profitability due to new property openings in Macau this year are far too optimistic,” Jamie Soo, a Daiwa Capital Markets analyst, wrote in a research report. Analysts say that’s because its gaming industry remains stagnant with rising casino operating costs and more competition.

“Wynn Palace is targeting the VIP and premium mass segments, which are not growing,” said Praveen Choudhary, an equity analyst at Morgan Stanley. “Other casinos cite business as usual after the Palace opened.”

Moreover, it seems unrealistic to expect the opening of Wynn Palace and the Parisian to expand Macau’s gaming market meaningfully given the historical track record of casinos there, according Daiwa Capital’s Soo. “New supply did not drive new demand,”he said. “Signs of oversupply were already showing by [Sands Cotai Central]’s opening in 2012.”