A Decline In Macau VIP Gaming For June May Weigh Over Wynn’s Q2 Earnings

Wynn Resorts (NASDAQ:WYNN) will report its Q2 2014 earnings on July 29 and  we expect it to benefit from the continued strength in the Macau gaming market, which sustained its impressive run in the second quarter driven by high visitation. However, poor VIP gaming in June may weigh over Wynn’s Q2 earnings.

Mainland visitors grew by 14% in the first five months of this year, according to the Macau Government Tourist Office. ^[1] As a result, the region witnessed 5% year-over-year jump in gaming revenues during the second quarter. We expect Wynn Resorts to post a higher table games win rate driven by continued strength in mass-market gaming. It must be noted that casino revenues were up for the month of April and May, but declined in June due to a diversion to gambling on the FIFA world cup. VIP gaming likely declined by around 20% for the month. ^[2] This will have a meaningful impact on Wynn’s Q2 earnings as VIP gaming accounts for over 50% of its value, according to our estimates.

Recently, Las Vegas Sands (NYSE:LVS) posted strong growth in its Macau mass-market gaming operations and we expect Wynn to also benefit from the same (Read More – Las Vegas Sands’ Earnings Jump 31% Over Mass-Market Gaming Growth In Macau). One of the important factors of Wynn’s performance is the VIP table games win percentage, which usually is in the range of 2.7% to 3.0%. The figure stood at 2.79% in the previous quarter, much lower than the 3.14% experienced in the prior year quarter. It will be interesting to see how the win percentage trends during the second quarter.

See our complete analysis of Wynn Resorts’ stock here

Expect Continued Growth In Mass Market Gaming

Macau’s casino market continued its impressive run and collected more than $11 billion in gaming revenues during the second quarter, up 5% from Q2 2013. However, the picture looked much better in April and May when the gaming revenues were up by 11% and 9% respectively. Come June, there was a pressure on VIP gaming primarily due to the rise in sports betting over the FIFA world cup. Average table revenue dropped from HK$801 to HK$775 million per day after the World Cup kicked off, representing a decline of 3.3%. Casino revenues for June dropped 3.7% amounting to $3.4 billion. ^[3] This is the first time in five years that the revenues have declined in Macau. However, we believe this does not warrant any caution. While casino revenues may again fall in July amid continued betting on sports, long term market trends remain intact. We believe that post July, Macau’s casino business will go back to normal over VIP gaming.

We continue to believe that Macau mass-market gaming operations will drive growth for casino operators in Macau. The company with its premium brand image attracts more VIP players. However, in the previous few quarters, it has shown significant growth on mass-market gaming. During the first quarter, Wynn’s mass-market gaming win percentage of 43.4% was much higher than the 35.5% experienced in the prior year quarter. The higher win percentage led to 24% jump in mass-market table games wins to $301 million. ^[4] If Wynn manages to achieve higher win percentage in the second quarter, it will help it offset a decline in VIP gaming win, if any.

U.S. Operations To Perform Better

Las Vegas operations contribute close to 15% to Wynn’s value, according to our estimates. The region’s casino operations were muted in the previous quarter with declines in table drop as well as in table games win percentage. We are eager to see how win percentage trends in the June quarter, after declining by 6 percentage points in the first quarter as compared to the prior year period. ^[4] We expect the second quarter to be much better driven by gaming growth at the Strip. Overall gaming revenues at the Las Vegas Strip jumped by 22% to $532 million in June. ^[5] Wynn’s management at the previous quarter earnings call also stated that the second quarter would be 6% to 7% higher than the previous year. We forecast 2014 EBITDA of $520 million from the Las Vegas operations, reflecting a growth of 7% over the prior year.

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1. Visitor Arrivals, Macau – Statistics and Census Service [↩]
2. MACAU’S JUNE SWOON DOWN TO ABSENT VIP GAMBLERS; SJM REGAINS MARKET SHARE CROWN, Calvin Ayre, July 2, 2014 [↩]
3. Macau casinos feel heat of World Cup fever as gamblers bet elsewhere, South China Morning Post, Jul 1, 2014 [↩]
4. Wynn Resorts’ SEC Filings [↩] [↩]
5. Nevada gambling revenue jumps 14 percent in June, CNBC, Jul 25, 2014 [↩]