Wynn Macau 4Q rev up two thirds, profit down 27pct
Macau-based casino operator Wynn Macau Ltd reported a 26.6 percent decline in fourth-quarter profit in year-on-year terms, in part tied to the opening of its latest casino, Wynn Palace, located in Macau’s Cotai district. The results included the first full quarter of operations of Wynn Palace (pictured), which opened on August 22.
The company posted a profit of US$46.6 million for the three months to December 31, compared to US$63.5 million profit in the prior-year period, the firm said in a filing to the Hong Kong Stock Exchange on Friday. The results were presented according to International Financial Reporting Standards.
Total operating revenues were US$917.1 million for the fourth quarter of 2016, an increase of 65.1 percent, from US$555.7 million for the same period in 2015. Operating profit was US$86.1 million for the fourth quarter of 2016, a 7.5 percent increase in year-on-year terms.
Brokerage Wells Fargo Securities LLC said in a note that Wynn Macau Ltd’s results for the fourth quarter beat investor community expectations. “In our view, the strength was driven by higher than expected market share, inline promotions and discounts quarter-on-quarter, higher than expected non-gaming revenues, and slightly higher operational expenses,” analysts Cameron McKnight and Robert Shore wrote.
In a separate results filing to Nasdaq, Wynn Resorts Ltd – the parent company of Wynn Macau Ltd – stated that net revenues and adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) from Wynn Palace casino resort were US$418.7 million and US$77.5 million, respectively, for the fourth quarter of 2016. Wynn Resorts reports its results on a U.S. generally accepted accounting principles (GAAP) basis.
During a follow-up conference call to discuss the firm’s fourth quarter numbers, Wynn Resorts and Wynn Macau management noted that the performance at Wynn Palace was still a work in progress.
“The ramp up at Wynn Palace is clearly taking a little longer than we expected and likely will when we look around the circumstances surrounding the property,” said Matt Maddox, president of Wynn Resorts. “Wynn Palace, each day, is continuing to gain traction in the Cotai market,” he added.
‘Anomalous situation’
“What we have is an anomalous situation, where all four sides of our property are currently being enclosed by construction blockades of one kind or another,” said Steve Wynn, chairman of both Wynn Resorts and Wynn Macau Ltd. He was referring to constructions works for Macau’s light rail transit system and for the neighbouring MGM Cotai casino resort, being developed by MGM China Holdings Ltd, and Grand Lisboa Palace, from gaming operator SJM Holdings Ltd.
“It has tended to isolate our property on all four sides and has made access to the Palace temporary highly encumbered,” Mr Wynn said. “We have worked, over the last month or so, in conjunction with the government, in trying to mitigate these substantial barricades that enclose our property,” he added.
Mr Wynn stated that the “blockade” – although a “disadvantage” in terms of property accessibility in the short term – would benefit the company in the long term once all surrounding construction was completed, improving access and adding critical mass to the area. But he recalled that, according to their respective original schedules, both the light rail transit system and the surrounding casinos were to be opened by now.
Wynn Macau Ltd president Ian Coughlan confirmed that the firm also had been introducing changes to Wynn Palace to improve performance. “We made a number of significant casino floor changes with game mixes,” he said.
“We are very focused on ramping up premium mass, which me believe is a real edge-giver, given our service and our facility,” the executive added. He also said management was increasing the causal dining offering at Wynn Palace due to demand.
Mr Coughlan said the firm additionally had been working to increase VIP volumes at Wynn Palace, including by attracting “casual junkets” to partner with the property.
He added: “Looking at the cannibalisation aspect, pretty much what we perceived was going to happen has happen: there has been a fairly significant impact on our direct VIP [at Wynn Macau hotel casino in] downtown because we have a lot of Wynn players that want to come and experience the new property.”
Union Gaming Securities Asia Ltd analyst Grant Govertsen said that “while construction barricades are probably having a slight impact on foot traffic into Wynn Palace and that their removal will be a net positive, the real upside potential cannot be realised until Wynn Palace enjoys the same cluster effect as the company does on the peninsula.”
Mr Govertsen wrote in a Friday note: “With the recently announced delay to MGM Cotai, the cluster effect now becomes a 2018 story. Over 2017 we expect the peninsula property to remain stable as it relates to mass gross gaming revenue (GGR), while we expect Wynn Palace on Cotai to steadily improve, although we would look to 2018 to be the year where mass begins to reach its true potential on Cotai. This isn’t just a function of the cluster effect, but also of the need to build out the marketing tools and marketing teams necessary to compete on Cotai.”
According to a Friday note from Sanford C. Bernstein Ltd, the “Wynn Palace ramp up in the near term continues to have some challenges due to location, construction and late start to marketing the property.”
Analysts Vitaly Umansky, Zhen Gong and Yang Xie added: “Wynn Palace ramp up in GGR is progressing well, non-gaming is weaker than we had expected. Ramp should continue and margin improve over the next few quarters.”
Wynn Palace had a final construction cost of US$4.4 billion, Mr Wynn confirmed during the conference call.
Casino performance
Casino revenues from Wynn Palace were US$373.2 million for the fourth quarter of 2016. In VIP operations, table games turnover was US$10.33 billion and table games win as a percentage of turnover (calculated before commissions) was 2.68 percent, “below the expected range of 2.7 percent to 3.0 percent,” the firm said.
In mass-market operations, table drop at Wynn Palace was US$725.0 million for the three months ended December 31, table games win was US$159.6 million and table games win percentage was 22.0 percent. Slot machine handle was US$534.4 million and slot machine win was US$28.1 million for the fourth quarter of 2016, according to Wynn Resorts.
Non-casino revenues before promotional allowances from Wynn Palace were US$86.1 million for the fourth quarter of 2016. Room revenues were US$40.6 million with an average daily rate of US$272 and occupancy of 88.4 percent.
At Wynn Macau hotel casino, casino revenues were US$465.3 million for the fourth quarter of 2016, a 10.7 percent decrease from US$521.2 million for the same period of 2015. Table games turnover in VIP operations was US$10.80 billion, down 17.2 percent from US$13.03 billion for the fourth quarter of 2015. VIP table games win as a percentage of turnover (calculated before commissions) was 3.08 percent.
Table drop in mass-market operations was US$1.10 billion, a 7.5 percent decline from US$1.19 billion for the fourth quarter of 2015. Table games win in mass-market operations was US$193.9 million, a 15.2 percent decrease from US$228.6 million for the fourth quarter of 2015.
Wynn Resorts as a group reported net revenues for the fourth quarter of 2016 were US$1.3 billion, up 37.3 percent from US$946.9 million a year earlier. The figure includes both its operations in Macau and Las Vegas, in the United States. On GAAP basis, group net income for the period was US$113.8 million, or US$1.12 per diluted share, an increase of 30.5 percent compared to US$87.2 million, or US$0.86 per diluted share, in the fourth quarter of 2015.
For full-year 2016, Wynn Resorts reported net revenues of US$4.47 billion, an increase of 9.6 percent compared to US$4.08 billion in 2015. Net income for 2016 was US$242.0 million, compared to US$195.3 million in the previous year.
The company is currently constructing a new casino resort located in Massachusetts, in the United States.
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