Brokerage Union Gaming Securities LLC doubts that United States-based casino group Wynn Resorts Ltd will need to spend much money on extending its Wynn Palace gaming resort (pictured) in Macau prior to getting clarity on whether its local unit Wynn Macau Ltd can stay in that market.
Wynn Resorts announced on Wednesday that work on a US$2-billion extension to Wynn Palace – involving a new 650-room hotel tower and a non-gaming feature known as Crystal Pavilion – would start toward the end of 2021, and that the job would take at least three years.
The gaming concessions held by the six current casino operators in Macau are due to expire in June 2022.
John DeCree, an analyst at Union Gaming, said in the Thursday note, referring to that first extension phase for Wynn Palace, a resort that opened in 2016: “Meaningful capital spend wouldn’t begin until 2022, so we see little risk that the company will invest prior to clarity on the renewal.”
The commentary assumes that there would be some clarity regarding the Macau gaming concessions refreshment by 2022, either in the form of a public tender or an extension of the existing licences. Macau’s government has the option – under the current legal framework for gaming in the city – of rolling over the existing permits for a maximum of five years, once they reach a 20-year limit.
Two of the operators, SJM Holdings Ltd and MGM China Holdings Ltd, have already had their original 2020 deadlines extended for two years each, to put them on the same June 2022 finishing line as the other four. SJM Holdings’ and MGM China’s original licences were valid for 18 years.
Referring to nearer-term operational matters, Union Gaming gave credit to Wynn Resorts for being cautious in its forecast for US$1.65 billion in Macau-market earnings before interest, taxation, depreciation and amortisation in the year 2021. The estimate was given at an investor presentation in the U.S. on Wednesday where the Wynn Palace extension was also announced.
Mr DeCree stated: “We appreciate the conservative outlook given the difficulty to forecast gross gaming revenue trends in Macau but even with these moderate expectations a long-run free cash flow target of US$16 per share is quite compelling.”
Union Gaming said that beyond a “few unique opportunities” for Wynn Resorts, including for a Japanese licence, the casino group would “focus on high return-on-invested-capital projects in Macau and return capital to shareholders, primarily through a visible and sustainable dividend”.
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