From the faraway vantage point of Wall Street, many have only visited Macau's burgeoning casino industry vicariously through Daniel Craig's James Bond in 2012's Skyfall.
Encircled by a sea of yachts and floating lanterns, a tuxedoed Bond is boated into one of Macau's gaming palaces through a dragon's mouth and under a dome of exploding fireworks.
The takeaway: Macau is a billionaire's playground. And the ordinary vacationer would be better off looking to Vegas for a weekend of blackjack and glitzy hotels.
But all of that is changing, and shareholders of Wynn Resorts (WYNN) and Las Vegas Sands (LVS) have been cashing in as Macau looks to become the next Vegas Strip, with more appeal and access for the non-VIP gamer. (Wynn Resorts and Las Vegas stands are both members of Real Money's Vice Squad watch list.)
Wynn and Las Vegas Sands rake in about 60% and 50% of their EBITDA, respectively, from the Macau region, and that a further stabilization and transformation of the Macau gaming market can add to recent gains in their shares, based on a Morningstar projection. (EBITDA is a standard valuation metric standing for earnings before interest, taxes, depreciation and amortization.)
Signs of acceleration in the market have pulled Las Vegas Sands and Wynn shares up about 36% and 15%, respectively, over the past three months.
On one hand, Macau's August gaming revenue showed positive year-over-year growth for the first time since May 2014, according to the Gaming Inspection and Coordination Bureau, and July was the fourth straight month of year-over-year visitation growth -- perhaps an even more positive sign as demand appears to be meeting supply as new casinos crop up.
"The Chinese and Macau government are trying to make Macau a more diversified, mass gaming destination with a lot of non-gaming attractions," Morningstar's Dan Wasiolek said in a Tuesday phone interview with Real Money.
The new casinos come from each player in the region's oligopoly. Only six operators currently have gaming licenses in Macau: In addition to Wynn and Las Vegas Sands, these include Melco Crown Entertainment (MPEL) , MGM Resorts (MGM) , Macau's SJM Holdings and Hong Kong's Galaxy Entertainment.
For instance, Wynn's high-end Palace opened in late August, Las Vegas Sand's Parisian opened earlier this month and MGM is slated to open a new venue next year. Wasiolek expects it to open in the second quarter.
But the growth prospects for Macau and its gaming shareholders may really start to accelerate in 2018 as the region becomes more accessible for tourists, with an expansion to the closer "Lotus" border checkpoint set to open in 2018 at the nearby Cotai region, as well as a closer Pac On ferry terminal. And Macau is in critical need of overhauling its transportation infrastructure given its heavily crowded streets: At 19,393 people per square mile last year, Macau is the world's most crowded region, according to the World Bank.
There will also be a new light-rail monorail system (akin to the Vegas Strip's) set to come online in 2019. And expansion is only then set to continue, with plans for sea landfills in five key zones expected to add about 12% to Macau's total area, Morningstar models.
All said and done, it may be best for skittish shareholders to leave there money on the table if they're hesitant about their lucky streak ending in Macau.
