Macao Gaming: Geopolitical and US Policy Actions Increase the Risk Premium

We have adjusted our cost of equity assumptions for Wynn WYNN, Las Vegas Sands LVS, and MGM MGM due to their exposure to Macao, increasing geopolitical tensions between the US and China, and to harmonize with our assumptions for the Hong Kong-listed shares.

In late February, President Donald Trump’s administration added Macao to the list of “foreign adversary” countries, restricting the region from investing in US areas such as technology, infrastructure, and energy. In addition, Trump’s tariff war is moving the US further toward protectionism, a shift we see lasting for the foreseeable future. As a result, we have added a risk premium to the cost of equity of 1.5% for narrow-moat Las Vegas Sands (about 60% of its EBITDA is estimated to come from Macao by the end of the decade) and of 0.5% for no-moat MGM (20%), while we maintain the 1.5% premium already modeled for narrow-moat Wynn (50%). The risk premiums harmonize with 1.5% country risk premiums for narrow-moat companies Sands China, MGM China, and Wynn Macau.

Additionally, we are reducing Las Vegas Sands’ cost of debt to 6.5% from 8%, which compares with our (maintained) 8% cost of debt of both MGM and Wynn, to reflect the company’s relatively stronger balance sheet. To this point, Fitch’s credit rating for Las Vegas Sands is BBB- (investment-grade) versus BB- (non-investment-grade) for MGM and Wynn. Our reduced fair value estimates are $53 per share for Las Vegas Sands ($56 prior) and $46 per share for MGM ($49 prior). Meanwhile, our fair value estimate on Wynn’s shares remains at $111.

While we will continue to monitor the macroeconomic environment for our Macao-related coverage, we maintain our view that all six gaming concessions will get renewed and extended beyond the 2032 period. Our stance is based on China’s desire that Macao be a world destination resort, which we think requires the integrated resort expertise of Las Vegas Sands, MGM, and Wynn.