Casino operator Wynn Resorts Ltd’s estimate for incremental earnings from its just-announced US$2-billion first extension phase at Wynn Palace in Macau “seems a bit aggressive,” said a Wednesday note from JP Morgan Securities (Asia Pacific) Ltd.
The United States-based Wynn Resorts – parent of Macau operator Wynn Macau Ltd – had revealed the Wynn Palace plan for “Crystal Pavilion” and a new 650-room hotel tower, during an investor day on Wednesday in the United States. A second 650-room tower would follow in a further extension phase at Wynn Palace, but no budget or timetable has been announced yet.
The presentation by Wynn Resorts management to the investment community mentioned that Crystal Pavilion would have an art museum (pictured in a rendering), a “270-degree fully-immersive entertainment theatre,” and what it termed a “destination food hall that offers a wide variety of regional Asian cuisines”. The firm anticipated 7 million to 10 million visitors annually for the new facility.
JP Morgan analysts DS Kim, Jeremy An and Christine Wang noted regarding the outlined cost of the first extension phase at Wynn Palace located in Cotai: “Target return on investment is 15 to 20 percent, implying incremental EBITDA [earnings before interest, taxation, depreciation and amortisation] of US$300 million to US$400 million from phase one.”
That implied a “35-percent to 47-percent boost” to Wynn Palace’s trailing 12-month EBITDA, “which seems a bit aggressive for primarily non-gaming expansion,” stated the institution.
Wednesday’s presentation materials from Wynn Resorts said Crystal Pavilion would “redefine the non-gaming experience” for resort customers in Macau. It didn’t explicitly say the extension would be devoid of gaming.
The casino group had said work on Crystal Pavilion and the first extra hotel tower would begin in “late 2021” – only months before Wynn Macau Ltd’s current Macau casino concession is due to expire in June 2022.
The company-mentioned a “36-plus months” construction timetable, which according to JP Morgan implied a 2025 opening for the facility.
Brokerage Sanford C. Bernstein Ltd noted actual construction might conclude in 2024. The institution’s analysts Vitaly Umansky, Kelsey Zhu and Eunice Lee wrote: “We view the expansion as a long-term growth driver for Wynn, however, the near-term impact is limited.”
Both JP Morgan and Sanford Bernstein thought Wynn Resorts’ 2021 target for Macau EBITDA – of approximately US$1.65 billion and mentioned in the Wednesday presentation – looked “conservative”. So did Deutsche Bank Securities Inc in its Wednesday memo on the presentation day.
Deutsche Bank also alluded to concerns of some investors that Wynn Resorts – having just opened the US$2.6-billion Encore Boston Harbor and having pledged to pursue a multibillion-U.S.-dollar casino resort scheme in Japan – might risk overextending itself.
Deutsche Bank analysts Carlo Santarelli, Steven Pizzella and Brian Mullan said in a note about the investor day: “…a focus on capital returns and deleveraging through EBITDA growth, were positives, as we believe concerns around a meaningful capital spend that would detract from the free cash flow story were present [coming] into the event.”
Brokerage Nomura said in its Wednesday memo on the presentation to investors: “Wynn’s ‘discretionary free cash flow’ target of US$1.68 billion, or US$16 per share, in 2021 is a consolidated number.”
The institution’s analysts Harry Curtis, Daniel Adam and Brian Dobson added: “Adjusting for non-controlling interests in Macau, we estimate Wynn’s ‘true’ free cash flow per share target in 2021 is closer to US$11.40 per share.”
This was “not far off” Nomura’s US$12 per share estimate, said the brokerage’s analysts.
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