Wynn Resorts Q2 Earnings Preview: Watchout For Mass Table Games Win Percentage

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Wynn Resorts (NASDAQ:WYNN) will report its Q2 2015 earnings on July 29th. [1] We expect the company to continue to face headwinds from the ongoing decline in Macau gaming and post lower revenues and profits for the quarter. The decline could be as steep as 30% as compared to the prior year period. Macau continues to face the heat even after 13 straight months of decline amid the government’s crackdown on corruption, which has kept VIPs away from Macau. As a result, the company has been shifting its VIP gaming tables to mass-market gaming, where the intensity of decline is comparatively lower and the business itself offers much higher margins, due to absence of junket operators. Recently, there have been a few positive developments for the casino industry, such as a relaxation of visitation rules to Macau and an uptick in gaming in the last week of June. Given these developments and the supportive measures from Beijing, we believe gaming in Macau maybe at a cusp of rebounding.

Las Vegas Sands (NYSE:LVS) recently reported its Q2 earnings, which declined over 30% amid Macau slowdown. [2] For Wynn, we’ll be closely watching for the table games win percentage. The win percentage of 47.2% in the previous quarter was on the higher side and it helped the company outperform the Macau market on the mass-gaming front. [3] A higher hold percentage in the second quarter could be helpful to offset some of the declines in VIP gaming, which plunged 42% in Macau during the second quarter. [4]

Macau casinos continue to face headwinds from declining volumes. The primary reason for this drop is the government’s anti corruption crackdown, which started last year and it has primarily hurt the VIP business of Macau casinos. While visa transit restrictions also contributed to the fall, Chinese government recently relaxed the visitation rules to Macau. Mainland Chinese residents can now visit Macau twice per month rather than the prior twice per two-month period and the maximum length of any one stay has also increased from five days to seven days. [5] This is important as Mainland China visitors account for around 70% of the total visitation in Macau. Another concern for casinos was the smoking ban and there were reports last week that the government may ease plans to ban smoking rooms on gaming floors. [6] After several months of pain in the industry, there is some positive development from Beijing for Macau and we wonder if this could bring the much awaited recovery in the market.

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We estimate that VIP gaming contributes more than 20% to Wynn’s value. However, the company has been expanding its base in the mass-market segment for quite some time now. The segment revenues have grown from less than $500 million in 2009 to over $1 billion in 2014. This is positive for the company in the long run given that the mass-market gaming offers much higher margins as it does not involve junket operators. Looking at VIP gaming, it will surely be hit hard in the upcoming quarterly results.  But on the brighter side, non-gaming operations may do well and help offset some of the losses seen on the gaming front. We currently estimate gross revenues of over $5 billion for Wynn Resorts in 2015 and EPS of $4.38, which is higher than the market consensus of $3.99, compiled by Thomson Reuters. We currently have a $139 price estimate for Wynn Resorts, which we will update after the second quarter earnings announcement.

See our complete analysis of Wynn Resorts’ stock here

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Notes:
  1. Wynn Resorts’ Press Release []
  2. Las Vegas Sands’ SEC Filings []
  3. Wynn Resorts’ SEC Filings []
  4. VIP GAMBLERS’ SHARE OF MACAU CASINO REVENUE DROPS FIVE POINTS, Calvin Ayre, July 17, 2015 []
  5. Macau gaming revenue falls again, but visitation rules eased, Las Vegas Review Journal, July 1, 2015 []
  6. Macau Casinos Surge on Report Government May Soften Smoking Ban, Bloomberg, July 13, 2015 []