Wynn Palace Helps Deliver A Solid Quarter For Wynn In Q3’16

Wynn Resorts (NASDAQ: WYNN) reported its Q3’16 earnings on November 2nd and the results came in above the analyst estimates. The company outperformed Macau’s casino industry and reported 11.5% growth in its Macau revenues, primarily because of its new casino Wynn Palace in Cotai strip. Wynn’s Macau revenues have been declining since September 2014 due to corruption crackdown by the Chinese government before rebounding in Q2’16. This was attributable to the company’s improved table allocation strategy and a slower-than-expected decline in Macau’s Gross Gaming Revenue (GGR). The revenues of Wynn’s established Macau cainos declined in Q3’16, which can be primarily attributed to shifting of 250 tables from Wynn Macau casinos to the newly opened Wynn Palace in the Cotai strip. The company’s Las Vegas operation continued its growth despite some fluctuation in the number of visitors in the region.

Wynn Palace and Las Vegas Operations On A Roll

Wynn’s overall revenue increase of about 11.4% or $113 million in Q3’16 can be primarily attributed to solid performance from its Wynn Palace in Cotai strip. The overall EBITDA increase of about 9.1% is also due to the 40-day operation of Wynn Palace in Q3’16. Wynn Palace got license for 100 tables in 2016 and Wynn shifted 250 more tables from its other casinos in Macau to Wynn Palace. The increased number of tables and other attractions in the Wynn Palace led to huge footfall of visitors to the casino, aiding both VIP and mass market gambling. Non casino revenues of Wynn Palace were also impressive in its 40-day operation in Q3’16 and is likely to gain momentum going forward. We believe that Macau market is likely to witness positive revenues at least for the next few months because of the newly opened casinos of Wynn and Las Vegas Sands (NYSE: LVS) in Q3’16.

Wynn’s performance in Las Vegas strip was also impressive given the recent fluctuation in gross gaming revenues of the region. Mid single digit growth in both casino and non-casino operations from Wynn’s Las Vegas strip operations in Q3’16 indicates continued growth of Wynn in the region. We believe that Wynn will continue to perform better in Las Vegas market due to increased convention attendance, airline capacity and domestic gaming in the region. Additionally, no new casinos are coming in Las Vegas strip till 2019, which will ensure stable volumes for Wynn from its Las Vegas operations.

Macau may be heading towards stability after 2 years

Macau’s gross gaming revenues (GGR) started declining in mid 2014 due to the corruption crackdown of the Chinese government and economic slowdown in the region. However, after declining for 26 straight months, Macau witnessed increased GGR for the first time in August 2016. According to analysts, Macau casino industry has hit its bottom and is likely to grow once again in the coming quarters. The year-to-date decline in 2016 was close to 12% in first half of 2016 which reduced to just 6% in October 2016. However, much of this improvement can be attributed to the newly opened casinos of Wynn and LVS in third quarter of 2016. But as just 200 new tables were allotted to the new casinos combined, we believe the number of visitors have increased due to the non-gambling attractions included in Wynn palace and The Parisian (LVS’s new casino). The Macau government has also taken many steps in that direction and that may be on of the key reasons behind increased volumes in casinos and increased non-gambling revenues of Wynn’s Macau operations.

We are currently reviewing our valuation model for Wynn Resorts in light of recent earnings, and will have an update ready soon.

For our model and valuation, please refer to our complete analysis of Wynn Resorts

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