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Cramer: Do Not Buy This Hong Kong IPO

Eight initial public offerings are scheduled to price in the US this week – the most since December 2007 – but it’s an upcoming Hong Kong listing that had Cramer most excited on Monday.

Wynn Resorts will sell part of its “piping hot” Macau business on Oct. 9, Cramer said, and the deal should push WYNN shares higher, even beyond the 74% increase the stock has seen since he recommended it on July 24.

That’s why the Mad Money host wanted viewers to buy WYNN and not the IPO. He thought the parent company was a safer play on Macau, and he expected the deal to “finally unlock a lot of what’s known as ‘hidden value’ in this company.”

Right now, investors have no way to value the Macau division, but the offering will change that. The IPO’s underwriters have put it at $7.4 billion, which is a huge chunk of Wynn’s $11.6 billion enterprise value, or the cost for an acquirer to buy the company at its current share price. But Cramer predicted that once all the shares are sold Wynn Macau alone could be worth more than the entire enterprise valuation.

How does he know? Because Macau is already the largest gaming market in the world, and it’s growing. The Chinese flock there in droves, Cramer said, and the six casino companies that presently operate there have made “boatloads of money.” Investors have been looking for a pure play on Macau, and now they’ve found it in Wynn’s offering. Given the valuations that Chinese stocks are getting these days, this Hong Kong listing should do quite well.

As a result, so should Wynn Resorts. Basically, the better Macau does, the better the company does. Last quarter more than half of Wynn’s revenues and over 60% of its property earnings before interest, taxes, depreciation and amortization came from Macau. And that’s despite overall Macau revenues dropping 25% because of the Chinese government’s tightening of visa restrictions.

Wynn plans to sell about 25% of its Macau business, or 1.25 billion shares at between 8.52 and 10.08 Hong Kong dollars each under the ticker 1128, raising $1.63 billion for the parent company. A number of big-time Hong Kong businessmen have been courted, but Cramer expected buyers “to come in from all over the world” because this will be the only pure play on Macau. At least until Las Vegas Sands holds its own offering.

WYNN has run up in anticipation of the deal, so some profit-taking is inevitable. Maybe to as low as $64-$65, Cramer said, before bouncing up to $90 once the Macau business starts trading.

“If you want to get in on WYNN,” Cramer said, “let the profit-taking occur and then pounce.”

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

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