Will New Resorts Bring a New Flood of Tourists to Macau?

By Markets Fool.com

Macau is showing the smallest signs of life, and as a result, investors are finding new reasons to be bullish on the region. And two new resorts could be the catalyst gamblers need to come back to check out what they have to offer.

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The hope is that Las Vegas Sands' (NYSE: LVS) The Parisian and Wynn Resorts' (NASDAQ: WYNN) Wynn Palace are the kind of attractions that will spur a fresh visit to Macau. The question is whether that will lead to enough of a bounce to save everyone.

The latest draws to Macau

First to open was Wynn Palace, opening its doors on Aug. 22. The resort has 1,706 hotel rooms, a performance lake, and gondolas to bring guests into the hotel -- and with a focus on non-gaming activity, its Wynn Resorts' first real test at getting guests in Macau to spend a significant amount of money off the casino floor.

Image source: Wynn Resorts.

On Sept. 14, Las Vegas Sands opened The Parisian and its 3,000 hotel rooms, convention space, and a 1,200-seat theater. The property completes Sheldon Adelson's Cotai Strip vision and will augment The Venetian Macau, Four Seasons Macau, and Sands Cotai Central.

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Image source: Las Vegas Sands.

If you build it, will they come?

What's important for Macau as a whole is that new properties bring growth to the region. After two years of gaming declines, a 1% growth figure in August got the market excited but that's not enough to make these projects worthwhile.

Remember that MGM Resorts (NYSE: MGM) and SJM also have new properties under construction, and if Macau isn't growing, the four properties will cannibalize existing resorts as customers go to see what's new.

What'll be key to watch is where customers are going in Macau over the next six months. When Las Vegas Sands opened The Venetian in 2007, the property was off on its own on Cotai. It wasn't until Galaxy, Melco Crown's (NASDAQ: MPEL) City of Dreams, and Sands Cotai Central were opened that the region had a critical mass to attract tourists. The Parisian and Wynn Palace will help build even more mass and the two resorts under construction will help when they're completed.

This could result in properties on the Macau Peninsula losing business to Cotai resorts if there's not enough growth. And if there's no growth, they could hurt everyone.

What we can learn from the past

The best benchmark we have right now is Sands Macau, which held EBITDA steady from 2011 to 2014 as newer resorts took Macau's growth. It wasn't until 2014 when Macau's gaming revenue started to decline that the resort's profits fell significantly. A similar dynamic took place at Wynn Macau on the Macau Peninsula. Essentially, they were able to stay flat because Macau's growth in gaming went to Cotai.

If Macau as a whole isn't growing, we could see the center of gravity shift further from the Macau Peninsula to Cotai. This would be a big negative for resorts on the Macau Peninsula and there's nothing they can do to change the trend.

But a shifting center of gravity doesn't mean existing Cotai properties will remain as profitable as they are today. Growth is needed just to absorb the new capacity. That's why new visitors are needed in Macau to keep the gaming market profitable. We'll see in the next few months if new resorts are enough to attract them.

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Travis Hoium owns shares of Wynn Resorts. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.