Wynn Results Reveal Continued Loss in China Market Share


Wynn Resorts reported second-quarter results that were consistent with analyst’s outlook for the company to continue to lose market share in China. Revenue increased 6.3% to $1.33 billion (compared with consensus of $1.34 billion), and adjusted property EBITDA increased 10.8% to $425.7 million (compared with consensus of $413.9 million).

Management provided a brief update on its Cotai Strip casino, which is in the early stages of construction, and indicated that the budget for the project had been capped at $4 billion. Wynn currently offers investors a relatively attractive regular dividend yield of over 3%, and the company, which ended the quarter with $2.5 billion in cash, is likely to issue a special dividend again in 2013, following a special dividend of $7.50 per share in 2012 and $5 per share 2011.

Revenue for Wynn Macau increased 2.6% to $930.9.1 million (significantly underperforming the overall market, which grew 15.9% in the second quarter) and adjusted property EBITDA decreased 4% to $290.1 million. The company lost market in both the VIP and mass market segments, with VIP table game turnover declining 1.6% (compared with industrywide VIP gaming revenue growth 11.2%) and mass market table drop declining 6.7% (in sharp contrast to industrywide mass market gaming revenue growth of 27%).

Wynn’s weak performance in Macau was due to the company being late to recognize the significant opportunity on the Cotai Strip in Macau, and the company losing market share to new casinos on the Cotai Strip, and most notably to Las Vegas Sands’ new Sands Cotai Central, which opened in April 2012 and expanded in size by over 2,000 rooms, and 200 gaming tables, in the first half of 2013. We expect Wynn to lose market share to Cotai Strip casinos until the fourth quarter of 2013, and for the company to stabilize market share in the first quarter of 2014, and then recapture lost market share when the company opens its Cotai Strip quarter in the first or second quarter of 2016. We are maintaining outlook for the company to increase revenue in China by 4% to 5% in 2013, and 8% to 10% in 2014.

In the U.S. market, revenue for Wynn Las Vegas increased 16.2% to $401.4 million and adjusted property EBITDA increased 65.6% to $135.7 million, but the increase in revenue and EBITDA was driven by an unusually low table game win percentage of 15.0% in the year earlier quarter (below the expected range of 21% to 24%), and the company’s table game win percentage for the second quarter of 2013 improving to a more normal level of 21.5%. Gambling spend was weak, with table game drop down 4.8% and slot machine handle up by only 0.7%.

Non-casino revenue increased 3.9% to $302.1 million, with the increase driven by a 5.6% in average daily rates for the company’s hotel operations, offset by lower room occupancy, due to renovations. The recovery in the Las Vegas casino and hotel market continues to remain uneven and slow, with corporations remaining cautious on spending for conventions, and consumers, while increasing visitation to Las Vegas, not significantly increasing gambling spend per trip.


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