Investment bank Morgan Stanley says casino resort Wynn Palace (pictured) has failed to meet expectations of the investment community but nonetheless offers upside to investors in the venue’s promoter Wynn Macau Ltd, regarding the property’s long-term potential.
“The opening of Wynn Palace, a US$4.3-billion project and the most expensive casino ever built in Macau (per hotel room basis), has been disappointing, and consensus may revise down EBITDA [earnings before interest, taxation, depreciation and amortisation] expectations for 2017,” for Hong Kong-listed property owner and operator Wynn Macau Ltd, analysts Praveen Choudhary, Alex Poon and Thomas Allen wrote in a Sunday note.
They added: “However, we believe that as this is priced in to the third quarter 2016 results (stock has underperformed peers by 23 percent and Hang Seng Index by 16 percent since late July), we see a buying opportunity emerging for the stock, especially for longer-term investors.”
Wynn Palace contributed 40 days of operations to Wynn Macau Ltd’s third-quarter business. The property opened on August 22 in Macau’s Cotai district. Wynn Macau Ltd has yet to announce its third-quarter results.
Morgan Stanley on Sunday raised Wynn Macau Ltd’s stock rating to overweight for the first time in four years.
The investment bank estimated that Wynn Macau Ltd would post the “best growth” in EBITDA among Macau-based casino operators between 2016 and 2018, at a compounded annual rate of around 20 percent. “This is despite our fully ramped up EBITDA expectation for Wynn Palace of only US$433 million in 2018, which we think is conservative,” the analysts wrote.
Morgan Stanley said Wynn Palace had “a slower than initially expected” ramp-up “as it was not marketed properly and has access issues”.
It added: “We expect management/table reshuffle and improved access with MGM Cotai [casino resort by rival operator MGM China Holdings Ltd] opening in second quarter of 2017 to drive upside.”
The first was a reference to the resignation in late September of Gamal Abdelaziz as president and executive director of Wynn Macau Ltd. He was replaced by Ian Coughlan, since 2007 president of Wynn Resorts (Macau) SA, the local unit that holds the Wynn group’s Macau gaming concession. At the time of the announcement, Wynn Macau Ltd said Mr Coughlan would be responsible for the operations of both the Wynn Macau and Wynn Palace properties.
“We believe centralised management of both properties can better streamline operations and costs,” the Morgan Stanley analysts said. “We believe they may move some tables at Wynn Palace back to Wynn Macau to get back some lost [market] shares in peninsula over the busy weekends.”
The investment bank pointed that, historically, “Wynn casinos ramp slowly or disappoint initially, but then recover meaningfully”. It stated that had happened previously with the Wynn Macau casino hotel and also with Wynn Las Vegas, in the United States, the latter a property managed by Wynn Macau Ltd’s parent firm, Wynn Resorts Ltd.
A recent note from Moody’s Investors Service Inc said the successful ramp-up of operations at Wynn Palace was an important element in the maintenance of the current credit rating for Wynn Resorts.
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"Given the opaque nature of the VIP segment (56 percent of gross gaming revenue in first quarter 2017), forecasting Macau GGR with a fair amount of certainty is difficult; therefore, we remain cautious"