Wynn Resorts Remains Optimistic Despite Soft Macau Results

by Trefis Team
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WYNN
Wynn Resorts
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Weak Chinese VIP market dampened Wynn Resorts’ (NASDAQ:WYNN) results last week but the stock rose on higher dividend expectations as the company decided to double its quarterly dividend to $1  per share in 2013. [1] That said, the weakness in the VIP market in Macau (China) is certainly a concern given Wynn’s dependence on it. We estimate that close to half of Wynn’s value comes from Macau VIP Table Games. While the mass market table games revenue in Macau increased by more than 8% in Q3 2012 compared to the same period last year, VIP segment declined notably. [1]

The VIP market is relatively more dependent on the state of the economy and therefore, Wynn has suffered some setbacks due to slow Chinese economy. Even in the last quarter, Wynn Macau’s overall revenues fell down by 7.1% primarily due to the decline in VIP table games revenues. If we look at this quarter, even though the win percentage was higher, the VIP table games turnover declined by more than 12%. [1] Additionally, high competition in Macau from other players is another factor weighing heavy on Wynn. Given these headwinds, one might ask if this means the future is gloomy for Wynn?

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The company states that the VIP market in Macau seems to be stabilizing, even though things have been a little slow recently. [2] As the Chinese economy improves, we can expect VIP table games turnover to resume its growth as evident in our current forecasts.

Wynn’s management believes that there is still significant potential to increase the penetration in VIP market in China. [2] Additionally, the company is working on constructing a new establishment in Cotai strip and that should help its growth.

In essence, there might be short term pressure on growth in Macau, but given Wynn’s competence and expected improvement in the market, the long-term potential remains.

Our price estimate for Wynn Resorts stands at $119, implying a premium of roughly 5% to the market price.

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Notes:
  1. Wynn Resorts’ SEC Filings [] [] []
  2. Wynn’s Q3 2012 Earnings Transcript [] []
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