Wynn Macau faces tough times as wages and resort design costs rise

Increase in design costs for a new resort puts further pressure on the casino operator's margins after profit edges down 1.24pc in first half

PUBLISHED : Thursday, 21 August, 2014, 9:40am
UPDATED : Friday, 22 August, 2014, 1:08am

Casino and hotel operator Wynn Macau reported flat interim results and faces a tough second half as rising wages and design costs for its new resort, Wynn Palace, pressure margins.

The company witnessed a 1.24 per cent year-on-year drop in net profit for the first six months to HK$3.65 billion as a result of higher staff costs and provision for more free accommodation for VIP clients.

On Wednesday, Wynn Macau also posted a statement to the stock exchange saying it would boost its Wynn Palace budget for design services to HK$156 million from the original HK$78.8 million set three years ago.

Revenue rose 8.85 per cent to HK$16.24 billion from the first half of last year.

Revenue from its core casino business grew 9.75 per cent to HK$15.36 billion, driven by a 7 per cent increase in VIP table turnover.

Earnings per share stood at 70 HK cents, down from 71 HK cents. An interim dividend 70 HK cents was declared.

As the anti-graft campaign on the mainland and the tightening in junket liquidity continued to dampen high rollers' appetite in the reporting period, Wynn Macau increased the amount of free accommodation given to VIP clients. That resulted in a 10.72 per cent drop in room revenue to HK$65.65 million.

Operating costs rose 9.32 per cent to HK$12.32 billion, driven by higher gaming taxes and staff costs. Expenses on employees jumped 28 per cent to HK$1.49 billion owing to salary and bonus increases.

An estimated 70,000 to 100,000 workers are needed to staff the stream of new openings on the Cotai Strip over the next three years. However, the Macau government enforces strict quotas that favour the hiring of locals, resulting in a labour shortage.

Competing operators Sands China and Galaxy Entertainment Group have been targets of strikes in recent weeks and companies industry-wide have been doling out bonuses, salary increases and other benefits to attract and retain workers.

"You're going to now see directly into the capability in the individual management teams over the next year - who has the best core management team in a market. For a long time now, it has been hard to differentiate [between well-managed and badly managed casinos]," said Brett McGonegal, the chief executive of investment firm Reorient Group.

"The winners are the ones that will hold margins, not have them erode. For the first time in Macau's history ever, you're going to see this. It's not this huge bull market where everything you do gets rewarded."

Wynn Macau shares edged down 0.31 per cent to finish at HK$32 yesterday while the benchmark Hang Seng Index fell 0.66 per cent.