Slumping Chinese Economy May Affect Sands and Wynn
Shares of Las Vegas Sands (NYSE: LVS) and Wynn Resorts (NASDAQ: WYNN) have risen 12.11% and 15.23%, respectively, year to date, but may be at risk due to economic struggles in China.
Both Sands China and Wynn Macau, the Macau divisions of these gaming companies, operate seven casino resorts in the region, making them heavily dependent on this territory for a large portion of their revenue.
Research from Morgan Stanley and Refinitiv shows that Wynn is the US-based company with the highest percentage of its revenue derived from China, at 76%. Only battery manufacturer Microvast Holdings, with 80%, has a higher percentage of its sales coming from China. Sands China ranks fifth on the list of US-based, non-chip companies in terms of China revenue dependence at 62%.
Economic Struggles in China
China's economy is the world's second-largest, so a slowdown in China's economy could affect the rest of the world. Recently, the National Bureau of Statistics has stopped publishing youth unemployment figures, even though they were increasing rapidly. Additionally, the People's Bank of China shared data showing that business and consumer spending declined in July. This decline could hurt Macau's casino operators, including Sands China and Wynn Macau, due to their reliance on consumer spending.
In July, China's unemployment rate hit 5.3%, its highest level since February, and the central bank just lowered several key lending rates in an attempt to boost the economy. Data out last week confirmed that consumer spending decreased in July. While this is bad news for consumer cyclical industries, it may also weigh down the recovery in Macau, which has recently shown impressive progress. Some analysts predict gross gaming revenue in Macau will return to 2019 levels by next year.
Sands and Wynn Have Strategies to Mitigate Macau Weakness
While both Sands and Wynn are heavily reliant on Macau for their revenue, they have options for offsetting any potential weakness in the region.
In Wynn's case, its North American properties generated record adjusted EBITDAR in the second quarter. Additionally, Wynn plans to decrease its investment in US online sports betting, which could lead to cost savings.
Sands, meanwhile, has its Marina Bay Sands in Singapore, which is one of the most financially successful casinos in the world. It is currently performing well, even without a significant influx of Chinese tourists to the city-state.
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Source: www.casino.org
