Morningstar | Wynn’s Macau Revenue Share Impacted During 2019 Renovations; Intangible Asset Advantage Intact
We plan to reduce our $168 Wynn valuation by around a low-single-digit percentage to account for disruption at the company’s Macau Peninsula property, resulting from renovations taking place through 2019, as well as to account for further VIP industry weakness in Las Vegas. Despite the slight reduction in our fair value estimate, we see shares as undervalued.Wynn is set to see a downtick in its Macau gaming revenue share this year, as it renovates its Encore property located on the region’s Peninsula. That said, we see this investment as prudent to maintaining its long-term competitive positioning. Wynn is redeveloping its rooms, casino, retail, and restaurant offering at the resort to better serve the mass/premium mass gamer versus the VIP player, as the market mix is likely to shift to the former over the next several years, and the company is overexposed to high-end gamblers. In the short term, this will disrupt demand, witnessed by the 15% sales decline seen during the quarter, but should support its intangible asset advantage (source of its narrow moat) over the long term. We plan to lower our 2019 2.5% Macau sales decline estimate a few percentage points to account for near-term disruptions from this renovation.
In Las Vegas, Wynn revenue was hindered by a weak VIP environment, which drove its sales down 7% in the region. And while an improved event calendar should improve demand the rest of the year, we plan to reduce our 2019 2% revenue decline forecast to around a 4% decline to account for weaker near-term VIP play.
As we expected, Wynn retained its gaming license for its Boston property, after an investigation into the company’s suitability post allegations against founder and former CEO Steve Wynn last year. The company still plans to open the resort around late June of 2019, and we still expect the property to represent a high-single-digit percentage of total EBITDA in 2023.
VIP volume at Wynn’s Macau Peninsula and Palace properties dropped 40% and 18%, respectively, below the industry VIP gaming revenue drop of 13%, and the 1% increase in VIP turnover MGM saw. Meanwhile, mass volume increased 7% and 2% at the Peninsula and Palace, below industry mass gaming revenue growth of 18%, and the 16% lift in mass turnover seen at MGM. We expect Wynn’s gaming revenue share to rebound in 2020, as it completes its renovation projects later this year.
Wynn Resorts is a holding company. Through its subsidiaries, the company is a designer, developer, and operator of resorts featuring hotel rooms, retail space, an array of dining and entertainment options, meeting and convention facilities, and gaming. Through its subsidiary, Wynn Macau, Limited, the company operates two integrated resorts in the Macau Special Administrative Region of the People's Republic of China, Wynn Palace and Wynn Macau. In Las Vegas, NV, the company also operates and, with the exception of certain retail space, own Wynn Las Vegas and Encore Boston Harbor, an integrated resort in Everett, MA, adjacent to Boston.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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