Earnings Preview: Watchout For Wynn’s Table Games Win Percentage Amid A Decline In Macau Gaming

Wynn Resorts (NASDAQ:WYNN) will report its Q4 2014 earnings on February 3rd.  We expect the casino giant to face headwinds from the recent decline in Macau gaming. Macau gross gaming revenue fell by 25% in the fourth quarter amid the government’s crackdown on corruption, leading to seven straight months of declines that peaked in December with a 30% decline. ^[1] It must be noted that Macau VIP gaming accounts for 35% of Wynn’s stock value, according to our estimates and the recent decline in Macau has largely affected the VIP gaming in the region.

Last week, Las Vegas Sands (NYSE:LVS) posted a 16% decline in China revenues while Macau EBITDA also declined 15% to $713 million during the fourth quarter. Las Vegas Sands’ consolidated revenue decreased 7% to $3.42 billion but earnings per share jumped 28% to $0.92 for the quarter due to lower costs (Read More – Las Vegas Sands’ China Operations Decline After A Slowdown In Macau; Earnings Jump 28% Over Lower Costs).

One of the important factors to watch out for will be the table games win percentage. In the previous quarter, Wynn’s mass-market gaming win percentage of 51% was much higher than the 38% experienced in the prior year quarter. A high win percentage helped the company balance its Macau business as growth in mass-market table games offset much of the decline in VIP gaming and Macau EBITDA declined by a mere 1%. ^[2] We are eager to see if Wynn can repeat this feat with this quarter as well.

Looking at Macau gaming, an uptick has been anticipated for months and yet we wonder when the company will see gaming growth return in Macau. Meanwhile, the company’s stock price has declined by over 20% in the past three months. We currently estimate the 2015 EPS to be $9.05, which is notably higher than the market consensus of $7.18, compiled by Thomson Reuters. We have a $186 price estimate for Wynn Resorts, which we will update after the company reports its fourth quarter earnings.

See our complete analysis of Wynn Resorts’ stock here

Wynn Resorts Will See Headwinds From A Continued Decline In Macau Gaming Revenues

2014 was the first full year of decline in Macau gross gaming revenues, which were down a little under 3%. The primary reason for this drop is the government’s anti corruption crackdown. A wave of high-profile arrests of senior Chinese officials has hurt the VIP business of Macau casinos. Visa transit restrictions and a smoking ban added to the woes for casino operators in the region. Moreover, Beijing wants Macau to diversify its economy, largely dependent on gambling, which accounted for 80% of the local government revenues in 2013. While there is increased scrutiny over VIP gaming at present, and the revenue decline is painful, it could well help the economy to diversify in the long run, according to a research note by Union Gaming published last month. ^[3]

While the gaming situation in Macau may be fragile in the near term, we expect casinos to do well in the long run, given that Macau is the only place in China where gambling is legal. Also, gambling in China is an accepted practice in the home as well as in social circles. China is seeing growth in the number of HNIs (high net worth individuals), but only a small portion of them visits Macau for gambling. China currently has about 1.3 million HNIs with a combined wealth of $4.3 trillion. As China continues to grow, more people will likely visit Macau for gaming activities and Wynn as well as other casino operators should thus continue to benefit from the rising demand as they did in the past.

Wynn, with its premium brand image, attracts more VIP players. However, in the previous few quarters, it has shown significant growth on mass-market gaming. We estimate that the mass-market gaming contributes close to 25% to the company’s value. The segment revenues have grown from around $440 million in 2009 to close to $1 billion in 2013. We continue to believe that Macau mass-market gaming operations will drive growth for Wynn Resorts in the long run. Wynn plans to open a major new casino in Macau’s Cotai area. The 52-acre property will include a 2,000-room hotel, around 500 gaming tables and 1,300 slots. This property will further enhance its capacity in the region.

View Interactive Institutional Research (Powered by Trefis):

Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap
More Trefis Research

1. Macau Faces Losses in Mass Market Gaming Revenue, Casino News Daily, January 3, 2015 [↩]
2. Wynn Resorts’ SEC Filings [↩]
3. Get back in to Macau names: Union Gaming, GGR Asia, January 26, 2015 [↩]