Wynn Resorts (NASDAQ:WYNN) has had a tough time recently as its Macau revenues declined in the last quarter owing mainly to the slow growth in the Chinese economy. The upcoming Golden Week holiday in China could help the company’s revenues to a limited extent as the mass market traffic is driven towards Macau; however, given we don’t believe this will do enough to grow VIP table games revenue which constitutes a significant portion of Wynn’s Revenues.
- Are Wynn’s improved earnings from Macau sustainable?
- Will positive signals from Macau’s casino industry impact MGM and Wynn Resorts?
- Our Revised Price Estimate Of $100 For Wynn Resorts Post Q1 Earnings
- What’s Wynn Resorts’ Casino Revenue & EBITDA Breakdown?
- How Has Macau Revenue & EBITDA Contribution Changed For Wynn Resorts In The Last 5 Years?
- Is Mass-Market Gaming Becoming More Significant Revenue Contributor To Wynn’s Macau Casino Operations?
Wynn Is Highly Dependent On VIP Market
The VIP market is dependent on the economy of the country, whereas the mass market is relatively stable. The company has suffered some setbacks in the last quarter due to slow Chinese economy. Wynn Macau’s overall revenues fell down by 7.1% compared to the second quarter of 2011.  The VIP table games revenues declined by 7.2% whereas the mass market table games revenues reduced by 2.7%.  Given the above figures, it is clear that Wynn’s overall revenue growth is highly dependent on VIP table games.
Golden Week To Influence Mass Market, Benefits To Wynn Limited
During the Golden Week holiday this year, Macau is expected to receive more than 3 million tourists, which is 10% more compared to 2011.  The holiday seasons mainly influence the middle class families and salaried professionals, therefore the majority of the traffic will belong to the mass market segment. Since the casino and the hotel revenues depend on tourism, this week could prove to be fruitful for the major players of the industry such as Las Vegas Sands (NYSE:LVS) and Wynn.
The results might be better for Las Vegas Sands than Wynn as the former’s focus is more towards the mass market. The increase in the traffic will influence the mass market table games turnover. While the mass market table games only constitute 10% of Wynn’s value, they make up nearly 20% of Las Vegas Sands’ value as per our estimate.
Although the increase in the number of tourists will result in increase in hotel and food & beverage revenues, the target market i.e. the VIP segment constituting 48.5% of the company’s value, might not get much of a lift during this time.
Other Complementary Benefits
Wynn Resorts Macau already has an occupancy rate in the range of 90-92% in its hotels. A flood of tourists will not result in a considerable increase in the room revenues in our view. However, the increase in the mass market traffic will result in an increase in food & beverage and slot games revenues. Moreover, the cumulative effect of the mass market table games, slot games and food & beverage revenues will have a positive impact, but the driving force will not be comparable to the VIP table games. Ultimately, it is the broader improvement in the Chinese economy that will provide the catalyst for growth in Wynn’s revenues, and until this picks up, we don’t expect Wynn’s results to impress.
Our price estimate for Wynn Resorts is at $119, implying a premium of less than 5% to the market price.Notes: