On Monday, Fitch Ratings raised its outlook for Wynn Resorts Ltd. (WYNN) to positive from stable subsequent to the completion of the company’s Hong Kong initial public offering (IPO) for its Macau unit. The ratings also include an improved operating outlook following the relaxation of travel restrictions. 

Through the Hong Kong IPO, Wynn sold 1.25 billion shares or a 25% stake in its Macau business, which represented Hong Kong’s second-biggest haul of the year. 

Macau, a former Portuguese colony, is one of the world’s biggest gambling markets. Though the economic slowdown has negatively impacted the revenues of casino operators in the last few quarters, we note that Macau has been posting record revenues. Recently, visa restrictions had been lessened by Beijing to allow mainland tourists to visit Macau once a month rather than twice a year. 

In 2008, Macau generated HK$105.6 billion ($13.5 billion) of gross gaming revenue. This was more than double the revenue generated by the Las Vegas Strip during the same period. Wynn’s rival company, Las Vegas Sands (LVS), is also planning an IPO of its Macau assets in late November or early December. 

Wynn Encore Macau, the company’s second resort in Macau, is scheduled to open in the first half of 2010. The company has budgeted around $650 million for the construction of this resort and so far has incurred about half of that construction cost. 

While we remain encouraged with Wynn’s ability to execute in a difficult operating environment, its brand name and strong balance sheet with lower debt levels, we think the company’s limited diversity remains one of its key short-term risks. 

Additionally, the Macau authorities are considering regulations to increase the entry age limit and limiting the gaming tables. Though such regulations will dampen the growth of the casino industry in the region, we believe that the easing of visa restrictions will make up for the loss of revenue.
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