Morgan Stanley banking group has cut its earnings per share (EPS) estimates for Macau casino operator Wynn Macau Ltd due to the firm’s “higher than expected” fourth-quarter costs relating to, respectively, depreciation and amortisation, and finance.
“We cut our 2017-18 earnings per share estimates by 4 percent to 7 percent due to 10 percent and 5 percent higher than expected deprecation and amortisation and finance costs, respectively, in the fourth quarter,” said the note from analysts Praveen Choudhary, Alex Poon and Thomas Allen.
The institution now expects 2017 EPS to be flat compared to 2016, at HKD0.47 (US$0.0606) per share. It estimates the Wynn Macau group’s EPS for 2018 will be HKD0.63 compared to its previous estimate of HKD0.65.
But the Morgan Stanley team added, regarding a possible spring dividend announcement by the casino operator: “Regular/special dividend per share of HKD0.60 (4.4 percent yield) in March would be 40 percent higher than consensus and could be a catalyst.”
In August Wynn Macau Ltd opened the US$4.4-billion Wynn Palace gaming resort in the city’s Cotai district in a challenging market affected by factors including China’s ongoing anti-corruption drive. That is said by analysts to have moderated some of the demand by Chinese consumers for high-stakes gaming in Macau – a segment in which the Wynn Macau group has specialised.
Depreciation and amortisation costs for Wynn Palace in the three months ending December 31 were US$64.7 million, while those for Wynn Macau, on the city’s peninsula, were nearly US$24 million, according to Wynn Macau’s unaudited fourth-quarter earnings statement filed with the Hong Kong Stock Exchange on January 27.
The Wynn Macau group’s finance costs in the fourth quarter were nearly US$41.8 million, compared to US$19 million in the prior-year period.
Morgan Stanley noted in its memo: “We expect continued ramp-up of [Wynn] Palace through 2017, as mass [market] table yield and margins are still at a discount to industry averages.”
“In addition, operating costs [at Wynn Palace] will come down as efficiency improves, slot and non-gaming revenues (assuming VIP to have peaked) will continue to grow,” said the institution.
Wynn Macau Ltd’s fourth-quarter revenue rose by two thirds, but profit fell 27 percent year-on-year, the firm reported last month.
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”China has been strengthening the control over capital flow, and the impact of that has already been reflected [on Macau’s gaming revenue trend]. There should not be any bigger impact from the new… legislation [on the mainland] … on the gaming revenue trend here”
Wilfred Wong Ying Wai
President of Macau casino operator Sands China