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Morningstar | Wynn Macau Limited’s 1Q Result Helped by Strong Hold

We maintain narrow-moat Wynn Macau Ltd's fair value estimate at HKD 23.00 and think it is on track to meet our full-year estimate. Wynn Macau Ltd’s VIP gaming revenue declined 7% year over year in the quarter, better than the 13% decline in the Macau market’s as reported by DICJ. However, we think the outperformance in VIP revenue was helped by high win rate, that is, the group playing luckily, as the group’s VIP rolling chip volume was down 30% year over year. Non-VIP gaming revenue improved by 1% year over year in the quarter, underperforming Macau market’s non-VIP gaming revenue growth of 16% reported by DICJ. Mass drop was up 4% year over year.

Given the weaker momentum of high-end customers, the ramp up of MGM Cotai and Melco’s Morpheus, the increase in VIP tables at Sands China, the expected opening of Lisboa Palace early next year and the disruption of the renovation of Wynn Macau property, we expect Wynn Macau Limited to see share loss in the near term. This will be partially offset by the completion of the renovation of Encore and premium mass gaming area at the end of this year. Given Wynn Macau Limited’s strong positioning in the high-end market, we have no doubt that when the high-end market recovers and the Crystal Pavilion launches, the group will regain its market share. In the first quarter, 78% of the EBITDA was from non-VIP, which is lower than Sands China (92%) and Melco Resorts (over 90%) which also disclosed similar metrics. This indicates its higher-exposure to the higher-end segment.

Adjusted EBITDA was down 8% year over year and 2% sequentially. Adjusted EBITDA margin fell to 30.9% from 32.8% year over year but improved sequentially from 30.5%. Management noted choppiness in VIP and premium mass in the quarter, offset by growth in the base mass segment which grew 13% year over year. This is higher than the group’s mass revenue year-over-year growth of only 2%, indicating market share loss in the premium mass segment.

Wynn Palace’s adjusted EBITDA per table per day was 35% higher than Wynn Macau, delivering an annualized estimated return on capital (adjusted EBITDA/capital expenditure) of 21% in the quarter. VIP rolling was down 40% year over year at Wynn Macau versus a 18% decline in Wynn Palace. Mass drop increased 2% at Wynn Macau compared with the same quarter last year versus 7% increase at Wynn Palace. Given the proximity of Wynn Palace and MGM Cotai, we think Wynn Palace performed stronger than Wynn Macau, as Wynn Palace’s share loss to new properties can be partially mitigated by some flow-through of traffic from MGM Cotai.