Macau Slowdown Weighs On Wynn’s Q2 Earnings But Outlook Positive

+10.73%
Upside
98.84
Market
109
Trefis
WYNN: Wynn Resorts logo
WYNN
Wynn Resorts

Wynn Resorts (NASDAQ:WYNN) recently reported its Q2 2015 earnings, which came in 72% lower compared to the prior year period. [1] This was very much on expected lines given the massive decline the Macau market has seen during the quarter. Wynn has been aggressively targeting the mass-market and continued to allocate more gaming tables towards this segment amid lower volumes on VIP front. This is good as mass-market does not involve junket operators, thereby offering higher margins. We maintain our bullish stand on Macau and Wynn and expect mass-market gaming to drive growth in the medium to long run, led by buoyant growth in China’s middle class, which will boost visitation from Mainland China to Macau. We currently estimate the 2015 EPS to be around $4.59 and have a $117 price estimate for Wynn Resorts.

A decline in Macau gaming led to 36% lower revenues and 44% drop in EBITDA for Wynn Macau during the quarter. Wynn posted a massive 41% decline in VIP gaming turnover with a stable win percentage of 2.92%. [1] This is in line with a 42% drop in VIP Baccarat across Macau. Looking at mass-market, table win was down 33% as compared to a 30% decline in the overall market. [1] [2] Wynn shifted more tables from VIP to mass-market and it now accounts for 51% of room inventory. [3] The quarterly earnings were well received by investors and Wynn’s stock price surged 8% in Thursday’s trading session.

Looking at the overall Macau market, it has been on a decline for 14 straight months led by the government’s anti-graft measures. However, of late, there have been few positive developments, such as relaxation of visa regulations, which could bring in a recovery in the market. An uptick in gaming has been long anticipated and yet we wonder when the casinos will see gaming growth return in Macau. Having said that, we believe that the casinos will do well in the medium to long run, primarily led by growing middle class of China, which will fuel the Mainland China visitation to Macau. China’s GDP per capita is expected to grow to over $12,000 by 2020 as compared to $7,575 in 2014. [4] The Mainland China visitors to Macau are also on the rise and have grown from around 13 million in 2010 to over 21 million in 2014. [5]

Relevant Articles
  1. With Macau Business Picking Up Pace, Will Wynn Stock Recover To Pre-Inflation Shock Highs Of $140?
  2. Will Wynn Stock Recover To Pre-Inflation Shock Highs Of $140?
  3. Can Wynn Stock Return To Its Pre-Inflation Shock Highs?
  4. What’s New With Wynn Stock?
  5. With Optimism About A Macau Recovery, Is Wynn Stock A Buy?
  6. What’s Happening With Wynn Stock?

These factors will primarily boost the mass-market gaming in the region. Wynn has long been dependent on VIP gaming and it has established a premium casino image. While it is shifting its focus towards mass-market, it still aims for the premium mass. Nevertheless, mass-market is an important segment for any casino player in Macau as it does not involve junket operators and thus margins are higher. With the growth in income levels and visitation to Macau, Wynn will see a solid growth in mass gaming in the coming years. Also, it will open its Cotai resort, Wynn Palace, by end of March 2016, thereby enhancing its capacity in the region. We currently estimate Wynn Resorts’ gross gaming revenues of over $8 billion and EBITDA of $3 billion by end of the decade.

See our complete analysis of Wynn Resorts’ stock here

View Interactive Institutional Research (Powered by Trefis):

Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research

Notes:
  1. Wynn Resorts’ SEC Filings [] [] []
  2. VIP GAMBLERS’ SHARE OF MACAU CASINO REVENUE DROPS FIVE POINTS, Calvin Ayre, July 17, 2015 []
  3. Wynn Resorts (WYNN) Stephen Alan Wynn on Q2 2015 Results – Earnings Call Transcript, Seeking Alpha, July 29, 2015 []
  4. China’s GDP per capita to exceed $12,000 by 2020: report, ECNS Wire, May 19, 2015 []
  5. Visitor Arrivals, Macau Government Tourist Office []