5 Weeks Until Judgement Day In Cotai

In a new report, analysts at Deutsche Bank discuss the economics of the new Cotai strip resort properties being developed in Macau. With the May 27 Galaxy opening just five weeks away, analysts are not convinced that new Cotai properties will be able to pull their own weight when it comes to increasing revenue.

Cotai expansion
The latest phase of construction on the Galaxy Macau property in is just the first in a string of gaming construction projects to be completed in Cotai. Melco Crown Entertainment Ltd MPEL is expected to open its Studio City project in Cotai in 3Q15. Las Vegas Sands Corp LVS, MGM Resorts International MGM and Wynn Resort Ltd WYNN all either have projects currently in construction or projects planned for Cotai in the near future.

Worth the investment?
Deutsche Bank analysts question the belief that the opening of the new properties will lead to a massive influx of gaming revenue. While many Macau bulls subscribe to the “If you build it they will come” mantra when it comes to Cotai, Deutsche Bank analysts see “more losers than winners in the medium term with the Cotai pipeline build out.” They believe that the new resorts will produce significant new fixed costs for operators without driving “meaningful” incremental demand.

Analysts believe that consensus EBITDA forecasts for Macau through 2017 are 23-36 percent too high.

Stock picks
Deutsche Bank analysts see Wynn and MGM as the best-positioned Macau names moving forward and have Buy ratings on each stock. They currently have a Hold rating on Las Vegas Sands.

Disclosure: the author owns shares of Melco Crown Entertainment.