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Morningstar | Wynn Macau Limited FVE Raised by 9% Because of the Addition of Crystal Pavilion Phase 1

Following the incorporation of the first phase of Crystal Pavilion, we have lifted narrow-moat Wynn Macau Limited’s fair value estimate to HKD 25 per share from HKD 23 per share. The share is currently undervalued. We assume it will take three years for Wynn Palace’s first-phase extension to fully ramp up, and it will generate 12% return on invested capital, or ROIC, in its first year in 2025, expanding to 20% by 2028. This compares with management’s guidance of 15%-20% ROIC. The adjusted property EBITDA will increase by 22% in 2025 based on our assumption. Wynn Palace’s expansion, the first-phase Crystal Pavilion, will have a glass structure, designed by architect Robert . There will be two hotel towers, each with approximately 650 rooms or suites, yet-to-be-disclosed public entertainment attractions, a 270-degree theatre, food hall with Asian cuisine and art museums. The capital expenditure is expected to be USD 2 billion for the first phase and the capital expenditure of phase two is yet to be announced. The first phase of construction will start in late 2021 and will take more than three years, while the date of the second phase of construction not been disclosed. We assume the first phase will be launched in early 2025.

We assume the ROIC of the renovation at Wynn Macau Limited’s peninsula property will be 9.6% in 2020, just shy of our estimated weighted cost of capital of 10.7%. This is because of the growing competition in Cotai, as Galaxy Entertainment’s Galaxy third phase , Sands China’s the Londoner and SJM’s Grand Lisboa Palace are expected to open in 2020. Management guided a USD 104 million increase in adjusted property EBITDA to USD 1.65 billion in 2021 from the USD 1.54 billion in the trailing 12 months of first-quarter 2019, in line with our revised 2021 Wynn Macau adjusted EBITDA. Currently, 400 rooms and suites at the Encore tower with an average size of 900 square feet at the Wynn Macau property are being renovated. The west casino at Wynn Macau will be turned into a premium gaming area with 7,000 square feet for retail and two restaurants next to the casino. The capital expenditure for the renovation is USD 125 million.