Wynn Wynn or a bet too far?

Analysts question whether the gaming giant’s new Macau resort will deliver the returns it expects, as the gambling hub continues to struggle

PUBLISHED : Thursday, 18 August, 2016, 7:11pm
UPDATED : Thursday, 18 August, 2016, 11:01pm

Wynn Macau, controlled by 74-year-old Las Vegas casino mogul Steve Wynn, has posted better-than-expected net profits for the first half, thanks to improved cost-control measures.

But some analysts are now warning the gambling giant could have placed far too high an expectation on the earning potential of its much-anticipated Wynn Palace resort, which is due to open in the enclave on Monday.

Adjusted earnings before interest, taxes, depreciation and amortisation (ebitda), edged marginally down to HK$2.548 billion from HK$2.549 billion, the company said in an stock exchange statement on Thursday, which was just above analyst estimates of HK$2.28 billion, polled by Bloomberg.

Total operating revenue dipped 5.5 per cent to HK$9.690 billion from HK$10.254 billion.

The company’s new flagship hotel-casino property on Macau’s popular Cotai Strip is set to target “premium mass gamblers”, and many are hoping it will lift the gloom hanging over the city, the world’s biggest gaming centre.

On the back of its latest plans, there has been a 43 per cent rise in its shares this year. This year, Wynn’s Macau offshoot has been given more “Buy” ratings than most of its peers, as analysts consider its higher-end positioning delivers it an edge in luring more premium mass gamblers, who generally generate higher margins than high-rollers.

Commentators say there’s no question the new Cotai facility will be impressive.

“We anticipate Wynn Palace to provide better-quality services than the existing resorts in Cotai, which will bolster its profit prospects,” said Morningstar equity analyst Chelsey Tam.

But others have mixed views on the resort’s financial prospects, despite being bullish on the company’s shares, given the current economic downturn in the mainland, and the fact the resort has been allocated fewer than-expected gaming tables.

Its shares fell more than six per cent after it revealed it had secured just 100 table licenses for the site, way below the 200-250 analysts had predicted.

“We are cautious about whether Wynn Palace will live up to such high market expectations in view of the overall soft demand in Macau, and that tourists with smaller spending power are now driving visitor number growth,” said Nomura Securities Richard Huang.

The market consensus for Wynn Palace’s estimated annual ebitda is around US$430 million, more that four times higher that of run-rate of Galaxy Entertainment’s Galaxy Macau Phase 2, and Melco Crown’s Studio City, which both opened in Cotai last year.

But even with those two high-profile openings, Macau’s gross gaming revenue for the first half of 2016 fell back 11 per cent, following a 34 per cent slump for the whole of last year.

Wynn Macau’s latest figures on Thursday showed gross table wins in its VIP rooms were worth HK$6.6 billion in the first half, down 8.3 per cent, while its mass-market operations slipped 1 per cent to HK$3.733 billion.

We are cautious about whether Wynn Palace will live up to such high market expectations in view of the overall soft demand in Macau, and that tourists with smaller spending power are now driving visitor number growth
Richard Huang, Nomura Securities

Union Gaming analyst Grant Govertsen, who has downgraded Wynn Macau to “Hold”, argues the fewer-tables allocation, especially, has raised market doubts over whether Wynn Macau can meet its long-term growth expectations.

Although the company later said it would move underused tables from its existing casino to the new resort, the one hundred granted was significantly lower than the 250 tables each at Galaxy Macau Phase 2 and Studio City.

The authorities in the former Portuguese colony are stepping up their push to reshape the high-rolling gaming hub into becoming a destination for recreational gamblers and tourists, imposing gaming table caps, too, on the city’s other gaming concessionaires.

With rival Sands China also due to open the doors of its The Parisian development this year,

most industry insiders believed Macau’s gaming revenue slump could finally have bottomed out, after suffering months of declines.

But experts also caution that just whether the likely turnaround will be good enough to return the city to its former gambling glories, is another matter.