GGRAsia – Wynn’s ‘comfort’ on Cotai date despite table unknowns

Wynn’s ‘comfort’ on Cotai date despite table unknowns

Jul 30, 2015 Newsdesk Latest News, Macau, Top of the deck

Steve Wynn, chairman and chief executive of Wynn Resorts Ltd, said on Wednesday that he was “comfortable” with announcing a March 25, 2016, opening date for his new US$4.1-billion Wynn Palace casino resort in Cotai, Macau – despite not yet knowing precisely how many gaming tables he would get from the Macau government.

“I’m comfortable about the March 25 date. The government happily gave us 100 percent of our last and final request for construction labour, and so we’re fully staffed at 7,000 construction workers,” Mr Wynn – also chairman and CEO of the Macau unit Wynn Macau Ltd – told investment analysts on a conference call for the group’s second quarter results.

The firm had said in its first quarter earnings call in late April that Wynn Palace was likely to open before the end of the first quarter 2016.

Mr Wynn said in his update on Wednesday regarding Wynn Macau operations and Wynn Palace: “We’ve made some adjustments in the staffing until we have a clearer picture of the game total that will be allocated to us by the government, but in the meantime we’re finishing this building.”

Wynn Macau – which currently runs a single property on Macau peninsula – posted a 62.5 percent year-on-year decline in net profit for the second quarter, to US$73.6 million, using International Financial Reporting Standards (IFRS), the company announced on Wednesday.

“Wynn Macau second quarter property EBITDA [earnings before interest, taxation, depreciation and amortisation] fell 18 percent quarter-on-quarter to US$173 million (-44 percent year-on-year), in-line: unlike Sands… who grew margins,” wrote analyst Karen Tang of Deutsche Bank AG in Hong Kong on Thursday.

She was comparing Wynn Macau’s numbers to those of Sands China Ltd, which were released the previous week.

“Wynn Macau’s EBITDA margin contracted 200 basis points (bps) quarter-on-quarter to 28.1 percent (-386 bps year-on-year) as mass GGR [gross gaming revenue] fell sharply by 25 percent quarter-on-quarter (VIP revenue -5 percent quarter-on-quarter),” wrote Ms Tang.

Mr Wynn said that despite cost controls in the Macau operation – including having 173 fewer full-time employees compared to a year ago – the firm was “carrying extra baggage in our expenses” ahead of Wynn Palace’s opening.

“We’re packing a lot of people in the Macau peninsula operation… so that is one place where our expenses are artificially inflated as we warehouse people that we’re planning to take next door,” stated Mr Wynn, referring to transfer of some personnel from the Wynn Macau property on the peninsula, to Wynn Palace on Cotai.

Smoking lounges

The chairman also referred on the call to the possibility that the Macau government could continue allowing smoking lounges in Macau casinos. The amended tobacco control bill currently at committee stage in Macau’s Legislative Assembly still refers to the abolition of such lounges and a full smoking ban in VIP areas.

Ms Tang had previously estimated that a ban on VIP room smoking could trim VIP revenue by up to 15 percent, and that a ban on mass floor smoking might trim revenue there by 10 percent.

Grant Govertsen of Union Gaming Securities Asia Ltd said in a note on Thursday that Wynn Palace’s full allocation of construction labour, “along with market wide positive data points relating to transit visas and smoking, may suggest that we’re entering a period of active [government] support for the industry and gives us further confidence that we [the Macau market] have likely reached the bottom.”

Kenneth Fong and Isis Wong of Credit Suisse AG in Hong Kong noted of Wynn Macau’s second quarter report and earnings call: “Management’s outlook is cautiously optimistic citing stabilising VIP [gambling business] and growing mid-tier mass. A more supportive policy backdrop also helps.”

Vitaly Umansky and his colleagues Simon Zhang and Bo Wen at brokerage Sanford C. Bernstein Ltd in Hong Kong said in their note on Thursday: “Wynn Macau is expected to announce an interim dividend in August. We expect the company will reduce the payout ratio to 80 percent (or potentially lower).”