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Morningstar | Wynn Macau Limited to See Lower Year-Over-Year EBITDA in 4Q

We are planning to bring forward our assumptions of the start of a cyclical downturn and as such, we expect only a high-single-digit change to narrow-moat Wynn Macau’s current fair value estimate of HKD 22 per share. Our current fair value estimate incorporates a single-digit decline in revenue in 2020 and 2021, hindered by license renewal risks in the form of higher gaming taxes. We think total social financing growth will slow down, and export and business confidence will weaken because of the trade war between the United States and China. We believe that could put pressure on Wynn Macau’s earnings over the near term. Management has also seen signs of weakness post-Golden Week. Given Wynn Macau is positioned to the high-income demographic, we foresee that its earnings could be impacted more than other operators in the short term. Nevertheless, we adhere to the long-term structural story of Macau gaming and benefit from the under-penetration and infrastructure improvement story of Macau in the long run and believe this is a good time for long-term investors to accumulate Wynn Macau.

Management guided to $3.3 million-$3.7 million adjusted EBITDA a day, the mid-point of which would imply $322 million, an 14% year-over-year decline and 21% sequential decline in the fourth quarter. The group plans to construct its next casino resort on the 7 acres of land adjacent to Wynn Palace in 2020. This will include a large glass structure called Crystal Pavilion with nongaming elements, an immersive theater with shows, and 1,300 hotel rooms.

Wynn Macau Limited’s adjusted EBITDA grew 27% year-over-year and 16% sequentially, driven by strong performance at Wynn Palace (64% year-over-year and 26% sequential increase), $20 million of higher-than-normalized VIP revenue, $11 million insurance proceeds related to Typhoon Hato. Wynn Macau registered a 6% year-over-year EBITDA growth on 3% increase in revenue. More than 70% of the group’s EBITDA was generated outside of VIP.