GGRAsia – DB bullish on Wynn Resorts for Wynn Palace

DB bullish on Wynn Resorts for Wynn Palace

Aug 16, 2017 Newsdesk Latest News, Macau, Top of the deck, World

The stock of U.S.-based casino operator Wynn Resorts Ltd has been upgraded to ‘buy’ from ‘hold’ by brokerage Deutsche Bank Securities Inc in a Tuesday note.

Its analysts said factors affecting the recommendation included the institution’s recent upgrades in the forecast for Macau-wide growth in casino gross gaming revenue (GGR) in the third-quarter and full-year 2017; the ramp up of business at the Wynn Palace casino resort (pictured) in Cotai following its August 2016 launch; and the likely improvement in mass-market gambling earnings from the property.

Wynn Palace and its older sister venue Wynn Macau on Macau peninsula, are promoted by Macau casino operator Wynn Macau Ltd, with around 72 percent of the latter’s earnings before interest, taxation, depreciation and amortisation (EBITDA) attributable to the parent firm according to Deutsche Bank.

“Our updated Wynn Resorts model reflects the implications from our market forecast revisions in Wynn Macau results, as well as our perception of improved mass gaming trends at Wynn Palace,” wrote the institution’s analysts Carlo Santarelli and Danny Valoy.

Earlier in August, the brokerage had raised its Macau market-wide GGR growth forecasts to 24.4 percent year-on-year for the third quarter – from 15.9 percent previously – and to 18.9 percent for full-year 2017 – from 14.7 percent previously.

“We have upped our [Wynn Resorts] forecasts on stronger than previously-modelled mass volumes at [Wynn] Palace and modestly stronger VIP performance on the peninsula,” said Mr Santarelli and Mr Valoy.

“In Macau, our aggregate [Wynn Macau Ltd] third-quarter property EBITDA forecast is up approximately US$10 million from our prior forecast and is approximately US$18 million above [research firm] Consensus Metrix,” noted the analysts.

“We expect news flow from Macau to remain relatively quiet ahead of the NPC [sic] and believe upward revisions are likely,” they added, referring to the 19th National Congress of the Communist Party of China – an event which is due to take place this autumn in Beijing. Political commentators expect that the retirement will be announced during the event of a number of current members of the Politburo Standing Committee – the core leadership of China’s government.

“At approximately 12x 2018 [Wynn Resorts’] EBITDA, we feel the R-R [risk ratio] is attractive and we have upped our price target to US$150 from US$138,” said Deutsche Bank Securities, referring to its ‘buy’ call. It clarified the 2018 EBITDA estimate – equal to US$918.4 million net of corporate expenses – related to Wynn Las Vegas, Wynn Boston Harbor – a new U.S. project formerly known as Wynn Everett – and royalty fees associated with Wynn Macau Ltd.

Mr Santarelli and Mr Valoy stated: “While this is not a buy the dip call, [Wynn Resorts] shares have pulled back 8 percent on second-quarter earnings and broader equity market concerns, just as we believe an inflection is taking place on the mass floor at Wynn Palace.”

The analysts added: “Our checks give us confidence that the reconfiguration of the [Wynn Palace] mass floor has stimulated improved mass play. Accordingly, we think third-quarter consensus forecasts are beatable and we believe out-period upward revisions will drive shares higher. In addition to the upward revisions, we believe; 1) continued VIP strength will drive positive Macau market GGR revisions, 2) stocks will follow Macau market GGR, and 3) accelerating discretionary free cash flow will garner incremental investor attention.”