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Morningstar | Wynn's Renovation Presents Near-Term Headwind but Long-Term Support of Brand Advantage

We view Wynn Resorts as a high-end iconic brand that is well positioned to participate in the attractive long-term growth opportunity of Macau (77% of 2018 EBITDA), as it has expanded its room share in the region to 9% from 6% through the August 2016 opening of the Palace in the popular Cotai region. The offset to this expanded room presence is the expected long-term shift away from VIP and gaming revenue (where Wynn has outsize exposure) toward nongaming and mass play, as well as its existing Macau property on the peninsula, where traffic has lagged Cotai.We see solid Macau visitation and gaming growth, aided over the next several years as key infrastructure projects that alleviate Macau's congested traffic (Pac On Terminal and Hong Kong Bridge opened in 2018, the light-rail transit in 2019, and reclaimed land in 2020-25) come online, which will expand the region's constrained carrying capacity, thereby driving higher visitation and spending levels. Our forecast for annual mid-single-digit visitation growth over the next decade is supported by China outbound travel that we expect will average high-single-digit annual growth over the next 10 years. Additionally, we expect upcoming developments that add attractions and improve Macau's accessibility will improve the destination's brand, supporting our constructive long-term view on Macau. With Wynn holding one of only six gaming licenses, it stands to benefit from this growth. That said, the Macau market is highly regulated, and as a result, the pace and timing of growth are at the discretion of the government.The Las Vegas region (23% of 2018 EBITDA) doesn’t offer the long-term growth potential or regulatory barriers of Macau, so we do not believe the region contributes to Wynn’s moat. But there have been very minimal industry supply additions this decade, which is expected to continue until 2020 and 2022, when two large resorts are set to open and add high-single-digit incremental supply to the region. Wynn's Boston property, Encore (scheduled to open in 2019), and its Vegas project (design and construction in beginning phases) are set to provide incremental growth.