In the new Macau, Wynn Macau stands to capture even more of the gaming market due to its track record of performance in premium and VIP gaming. That’s the word from John DeCree, analyst with CBRE Equity Research.
As reported by Inside Asian Gaming, in a January 17 note to investors, DeCree said, “Historically, Wynn earns well more than its fair share in each of the markets in which it operates, including Macau. In 2019, Wynn exceeded its fair share in Macau across every metric.”
In the pre-pandemic year, he noted, the U.S.-based operator claimed about 10.5 percent of casino hotel room business and 9.5 percent of table business, yet reaped gross gaming revenues (GGR) and EBITDA (earnings before interest, taxes, depreciation and amortization) of 14.8 percent and 14.6 percent respectively.
Under its new concession agreement, which began January 1 and runs through December 31, 2032, Wynn will control 9.5 percent of hotel rooms and tables. Even so, DeCree said, consensus that it will earn 11.5 percent share of GGR and EBITDA underestimates the operator over the long term.
“Given the potentially smaller market and much less VIP concentration, some operators may not utilize all their allocated table capacity,” DeCree wrote. “This could lead Wynn to earn an even greater premium to its fair share if it can successfully consolidate the highest value customer segments and maximize profitability per table and room, as we suspect it will.
“While we appreciate the view that Wynn’s greater relative historical exposure to VIP could delay a strong recovery initially, we believe the company will be able to consolidate some of this legacy VIP business into its higher-margin premium mass market channels over the medium to long term.
“With the junket system upended, we expect the market to redistribute some of the legacy VIP business, particularly from under-resourced third-party service providers. When customers have more choice in where they play, Wynn should be able to leverage its best-in-market asset base and capture more than its fair share by consolidating some of the displaced higher-end customer segments.”
Wynn is also expected to capture “a greater share of a smaller VIP market,” according to DeCree.
In related news, the Chinese New Year (CNY) celebration that began January 22 brought tourism flooding back to Macau, thanks to the end of Covid-related limits on travel. According to GGRAsia, however, brokerage JP Morgan Securities (Asia Pacific) Ltd. described market performance for the first four days of CNY “decent but not amazing.”
“Our checks indicate a 50 percent-plus recovery in mass GGR,” compared to the same period in 2019, wrote analyst DS Kim. Almost a quarter of a million visitors came to Macau during that four-day period, per data from the Macau Government Tourism Office—up more than 330 percent from the holiday in 2022.
Visitors from Mainland China comprised 56.3 percent of all arrivals for the period, with Hong Kong travelers representing 37.6 percent of the total. In the past, about a quarter of Macau visitors came from Hong Kong, said Kim.
“Mainland visitation, which drives most of the gaming revenues, has recovered to 30 percent-plus of pre-Covid levels” over four days, which was “pretty solid but may not be as good” as some investors hoped, the analyst wrote.
Kim expects January GGR to exceed MOP200 million (US$24.8 million) per day, “representing about a 25 percent to 40 percent recovery in total/mass GGR, respectively.” He said the pace of recovery since the city reopened “has been well above estimates as we’ve been writing, in turn having raised the bar.”
He said the market looks for GGR of about MOP300 million per day for January, “implying around a 35 percent to 50 percent recovery in total/mass GGR, versus the first two months of 2019 … almost nearing the level that can drive the industry’s free cash flow to break-even, i.e., mid-50s of percent of mass recovery.
“We believe this is still achievable despite the weak-ish mainland visitation for lunar new year,” he said.
