Macau casino operator Wynn Macau Ltd could emerge as a “premier” gaming firm in the city’s oligopoly market, due to its favourable gaming business mix and operating efficiency in that field, suggests brokerage Sanford C. Bernstein Ltd. Its analysts also believe the expansion of the firm’s Cotai property, Wynn Palace, could underpin its long-term growth.
“While still viewed as a VIP operator, the reality is… Wynn [Macau Ltd] is largely premium-mass driven, with 85 percent of earnings before interest, taxation, depreciation and amortisation (EBITDA) generated by mass gaming and non-gaming in 2019,” wrote Sanford Bernstein analysts Vitaly Umansky, Tianjiao Yu and Kelsey Zhu in a Wednesday note.
The gaming operator also runs the Wynn Macau property on the city’s peninsula. The analysts believed Wynn Macau Ltd will be able during the Macau market recovery process – likely up to 2023 – to achieve “outsized premium mass share” due to the firm’s room quality, and product offerings.
The brokerage said in a November note, it was “now not assuming” VIP gross gaming revenue (GGR) in Macau would “recover before 2023,” until there is “more visibility around junket liquidity and demand”.
Sanford Bernstein nonetheless said in its latest note, it believed Wynn Macau Ltd’s strength in operating efficiency could help its rebound from the Covid-19 disruption.
As gauged from the firm’s 2019 performance, the brokerage estimated that Wynn Macau Ltd had the “second highest table yields” in the city.
On average, according to the institution, the gaming firm’s tables generated HKD166,000, or US$21,000, in win-per-unit-per day prior to the pandemic. For 2019, Wynn Macau Ltd’s table yield in the VIP segment, judged at over US$33,000 in win-per-unit-per day – was “23 percent” above the average VIP gaming table in Macau, said the institution.
The gaming firm’s table yield in the mass segment – over US$15,000 in win-per-unit-per day – was “30 percent” above the average mass table in the city and also the highest amongst local peers, the brokerage estimated.
The analysts suggested Wynn Macau Ltd’s long-term growth would likely come from planned expansion of its Wynn Palace property in Cotai.
The first phase of such work, also known as the “South Parcel Pavilion” project, has been flagged as costing approximately US$2 billion and includes a 650-room luxury hotel tower, and a structure known as the Crystal Pavilion. Timing and cost of the second expansion phase, known as the “North Parcel”, is still not yet determined.
Sanford Bernstein observed: “Wynn [Macau Ltd] is targeting a return-on-invested capital (ROIC) of 15 to 20 percent, which we see as reasonably achievable – assuming no change on gross gaming revenue [GGR] tax – and we view the expansion as a long-term driver for Wynn [Macau Ltd].” Currently in Macau, the effective tax on GGR is just under 40 percent.
For next year and beyond, the brokerage believed that the renovation of the Encore-branded hotel rooms at Wynn Macau downtown in the city – and redevelopment of the west wing casino at the venue – should also lead to “renewed VIP and mass strength” for the firm.
The analysts also note that liquidity “is not a concern” anymore for Wynn Macau Ltd, as the firm has achieved EBITDA break-even since October. As of October end, the firm has approximately US$2.2 billion in cash and available revolver. During the third quarter, its daily operating expenses had been reduced to US$2 million, down from US$3 million in the prior quarters.
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Vitaly Umansky, Louis Li and Shirley Yang
Analysts at brokerage Sanford C. Bernstein