Brokerage Sanford C. Bernstein Ltd says it has a “slight preference” for owning the stock of United States-based casino operator Wynn Resorts Ltd rather than its Macau casino unit Wynn Macau Ltd. A key reason was the parent’s “more diversified portfolio” of business, said the institution.
Wynn Resorts, as well as having exposure to the U.S. market – via a property in Las Vegas, Nevada and one in Boston, Massachusetts – and to Macau, is also a suitor for a casino licence in Japan.
Analysts Vitaly Umansky, Kelsey Zhu and Eunice Lee noted: “Encore Boston is a new growth driver for the company; Wynn Las Vegas is a stable cash cow.” They also stated Wynn Resorts had “better trading liquidity” for its stock than Wynn Macau, and “less demanding valuation”.
The analysts said they expected a 10 percent to 11 percent growth in earnings before interest, taxation, depreciation and amortisation (EBITDA) for both companies over the next few years, with a better performance for the parent.
“Overall, we expect Wynn Resorts to deliver 11 percent EBITDA 2019-2023 compound annual growth rate, while we expect Wynn Macau to deliver 10 percent EBITDA compound annual growth rate,” wrote the analysts. “The growth rates of the two are similar – but Wynn Macau will be more prone to volatility as the company is tied to one single market (Macau) with Las Vegas being more stable, but there is more uncertainty around Boston at this stage.”
The institution however acknowledged that “in the end, Wynn Resorts’ stock performance is still likely to be most impacted by what happens in Macau.”
Macau’s casino market has been facing headwinds this year. Its casino gross gaming revenue (GGR) tally for the first eight months of 2019 stood at MOP198.22 billion (US$24.5 billion), down 1.9 percent from the prior-year period, according to the latest available data released by the local regulator, the Gaming Inspection and Coordination Bureau.
The outlook for Macau’s September casino gross gaming revenue (GGR) “does not look satisfactory”, said on Monday the city’s Secretary for Economy and Finance Lionel Leong Vai Tac.
He noted that what he termed the current fluctuations seen in the city’s economy were linked to the “China-U.S. trade war”, trends in foreign exchange rates and “external incidents”.
Wynn Resorts gave details in July of its planned US$2-billion expansion to its newest Macau casino resort, Wynn Palace, in Cotai. The expansion includes an entertainment centre dubbed Crystal Pavilion and a new 650-room hotel tower.
Construction was likely to start in “late 2021” and was expected to take “36-plus months,” said the parent. The current Macau gaming rights of Wynn Macau Ltd expire in June 2022.
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Vitaly Umansky, Eunice Lee and Kelsey Zhu
Sanford Bernstein analysts