Wynn Macau Less VIP-Dependent, Has Right Stuff for Rebound, Say Analysts

Posted on: December 9, 2020, 10:32h. 

Last updated on: December 9, 2020, 01:42h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Wynn Resorts (NASDAQ:WYNN) stock is lower by almost 20 percent year-to-date, a slump largely attributable to softness in Macau’s VIP market. But some analysts see the operator as less reliant on that segment, possibly positioning the shares for more upside in 2021.

Wynn Macau
Wynn Palace in Macau, seen here. Analysts see the operator isn’t as VIP-dependent as investors believe. (Image: Nikkei Asia)

Wynn Macau, the company’s China arm, operates the namesake venue and Wynn Palace in the world’s largest casino hub. The investment community typically views Wynn Macau as intimately levered to trends involving the most affluent visitors to the special administrative region (SAR). It’s a group that’s dialing back spending this year amid Beijing’s money transfer crackdown and geopolitical tensions between the US and China.

Bernstein analysts offer a different view on Wynn, noting the operator’s client mix is more diverse than it’s given credit for. That could be a catalyst for a more earnest recovery.

While still viewed as a VIP operator, the reality is Wynn Macau is largely premium-mass driven, with 85 percent of earnings before interest, taxation, depreciation and amortization (EBITDA) generated by mass gaming and non-gaming in 2019,” according to the research firm.

The SAR is Wynn’s most important market, usually accounting for two-thirds or more of quarterly EBITDA in a standard operating climate.

Less VIP Dependence Is Positive for Wynn

Bernstein published a research note last month indicating it could be 2023 before Macau’s VIP returns to pre-coronavirus pandemic levels. The note confirmed that Wynn’s declining reliance on high-end gamblers is a plus for the company and investors,

Conversely, analysts have long been more enthusiastic about the recovery trajectories in the mass and premium mass segments, prompting bullish views on Wynn rivals, such as Galaxy Entertainment and Las Vegas Sands (NYSE:LVS).

There’s ample evidence suggesting Wynn stock is already reflecting a Macau rebound led by mass and premium mass players. In November, visitation to the SAR surged, while the gross gaming revenue (GGR) decline was significantly less bad than in the prior months. Over the past month, shares of Wynn are higher by more than 39 percent, making it one of the best-performing US-based gaming names over that span.

Efficiency and Expansion

Prior to the pandemic, Wynn Macau was one of the most efficient operators in the SAR, indicating that if that status is regained, investors stand to benefit. Last year, table games at its two Macau properties generated an average daily win of $21,000, a figure that jumped to $33,000 for VIPs, topping the average high-end table win by 23 percent, according to Bernstein.

Wynn’s mass-market table game win averaged $15,000 a day in 2019, beating rivals by 30 percent, notes the research firm.

The operator, which has been breaking even on the basis of earnings before interest, taxes, depreciation and amortization (EBITDA) since October, is moving forward with the planned $2 billion Crystal Pavilion near Wynn Palace.

“Wynn Macau is targeting a return-on-invested capital (ROIC) of 15 to 20 percent, which we see as reasonably achievable — assuming no change on GGR tax — and we view the expansion as a long-term driver for Wynn,” said the Bernstein analysts.