Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

Smartkarma

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Wynn's US operations are trading at their lowest valuation in 18 months. Meanwhile we have not seen material recovery in Macau. We would be setting a trade to long Wynn Resort and short Wynn Macau at the backdrop of its stable US operation and significant growth of Chinese tourists going to the US. Structural tourism trend. I have discussed about structural downtrend of Hong Kong's tourism in my earlier <a href="http://www.smartkarma.com/insights/hong-kong-s-future-3-structural-bears-for-retailer-tourism" target="_blank">insight</a>, at the expense of easing of visa requirement for Chinese tourists going overseas. Such bugbear for Hong Kong is at the same time a positive structural trend for other foreign tourist destinations, in particularly those developed countries offering great natural beauty and yet had strict visa policies in the past.Favorable visa policy. The US is one of them. It ranks second to France with 54% of Chinese citizen picking it as their primary aspirational long-haul destination. Since Nov 2014, the US has loosened visa policies for Chinese such that tourists would be able to obtain 10 year multi-entry visa, up from the former one year validity. It is also reported that the interview process for visa application has been relaxed such that it is easier for tourist to obtain visa. We are expecting the visa issued to Chinese to increase by 70% YoY. Chinese used to rank 6th in terms of origin of long-haul tourist and we are expecting them to rank higher. Recent surge in tourist arrivals and revenue in Wynn's domestic operation. In the first half of 2015, the US tourist arrival from China increased by 50% YoY, significantly higher 2014's 20% YoY growth. Meanwhile, revenue from its property in Las Vegas surged by 16.2% in the second quarter. Don't forget that Wynn's Everett resort in Boston is adding 50% and 115% of capacity to Wynn's domestic table and slot capacities. Airlines the crystal ball for inbound tourism growth?  On mainland China side, airlines are also riding the wave of outbound tourists by expanding capacities as if there's no tomorrow. Capacity provided by Chinese airline for the China-US route is growing at CAGR rate of 20% p.a. between 2010 and 2014. 2015 will mark the first year whereby Chinese airlines are operating a larger capacity than US airlines for this route. Since Feb this year, Chinese tourist are able to fly to the US from four second tier cities, including Shenyang, Nanjing, Wuhan and Chengdu. Flow analytics are also supportive to our setup. We see high short interest in Wynn Resorts vs. low short interest in Wynn Macau. We also see shareholders increasing stakes in Wynn Resorts and reducing stakes in Wynn Macau. Net-net, we believe long Wynn Resorts/short Wynn Macau is a safe bet to ride the structural trend. Given that Wynn Resorts are trading at 25% discount to its NaV at minus two times standard deviation from its mean, we would like to long the stub.

Wynn's US operations are trading at their lowest valuation in 18 months. Meanwhile we have not seen material recovery in Macau. We would be setting a trade to long Wynn Resort and short Wynn Macau at the backdrop of its stable US operation and significant growth of Chinese tourists going to the US. Structural tourism trend. I have discussed about structural downtrend of Hong Kong's tourism in my earlier insight, at the expense of easing of visa requirement for Chinese tourists going overseas. Such bugbear for Hong Kong is at the same time a positive structural trend for other foreign tourist destinations, in particularly those developed countries offering great natural beauty and yet had strict visa policies in the past.Favorable visa policy. The US is one of them. It ranks second to France with 54% of Chinese citizen picking it as their primary aspirational long-haul destination. Since Nov 2014, the US has loosened visa policies for Chinese such that tourists would be able to obtain 10 year multi-entry visa, up from the former one year validity. It is also reported that the interview process for visa application has been relaxed such that it is easier for tourist to obtain visa. We are expecting the visa issued to Chinese to increase by 70% YoY. Chinese used to rank 6th in terms of origin of long-haul tourist and we are expecting them to rank higher. Recent surge in tourist arrivals and revenue in Wynn's domestic operation. In the first half of 2015, the US tourist arrival from China increased by 50% YoY, significantly higher 2014's 20% YoY growth. Meanwhile, revenue from its property in Las Vegas surged by 16.2% in the second quarter. Don't forget that Wynn's Everett resort in Boston is adding 50% and 115% of capacity to Wynn's domestic table and slot capacities. Airlines the crystal ball for inbound tourism growth?  On mainland China side, airlines are also riding the wave of outbound tourists by expanding capacities as if there's no tomorrow. Capacity provided by Chinese airline for the China-US route is growing at CAGR rate of 20% p.a. between 2010 and 2014. 2015 will mark the first year whereby Chinese airlines are operating a larger capacity than US airlines for this route. Since Feb this year, Chinese tourist are able to fly to the US from four second tier cities, including Shenyang, Nanjing, Wuhan and Chengdu. Flow analytics are also supportive to our setup. We see high short interest in Wynn Resorts vs. low short interest in Wynn Macau. We also see shareholders increasing stakes in Wynn Resorts and reducing stakes in Wynn Macau. Net-net, we believe long Wynn Resorts/short Wynn Macau is a safe bet to ride the structural trend. Given that Wynn Resorts are trading at 25% discount to its NaV at minus two times standard deviation from its mean, we would like to long the stub.

Wynn's US operation undervalued, long the stub to ride structural tourist trend

Hong Kong

Wynn Macau, Limited owns and operates Wynn Macau, a destination casino resort currently featuring hotel rooms and suites, a casino, casual and fine dining restaurants, retail space and leisure amenities.

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Wynn Macau Ltd (1128 HK)

Wynn's US operation undervalued, long the stub to ride structural tourist trend

Wynn's US operations are trading at their lowest valuation in 18 months. Meanwhile we have not seen material recovery in Macau. We would be setting...

Ke Yan, CFA, FRM

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52-week Range

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