Union Gaming Research publishes company research and analysis on the global gaming industry.  Our research analysts continually identify and analyze financial information and trends that affect the industry.

Wynn Resorts (WYNN): 3Q Earnings Recap; Sin City sizzles, Macau inline

October 24 2012

Wynn Resorts’ 3Q12 results were above expectations in Las Vegas and largely in-line in Macau. The top-line revenue results were 3% above our estimates but 1% below Street the Street consensus. EBITDA was above both our and the Street expectations. The upside was driven mainly by results in Las Vegas and high-hold in Macau also positively impacted results. Concurrently, with the release the company announced it had approved an $8 cash dividend payable on November 20. In addition, WYNN plans to increase its quarterly dividend two-fold to $1.00 from $0.50.

All in, the quarter was good. The results in Las Vegas were better than expected and better than monthly market datapoints would have suggested. Off the gaming floor, WYNN saw double-digit growth in its nightclub business. The gaming table drop was up sharply in what felt like a somewhat slow summer in Vegas. However, the bulk (roughly 70%) of WYNN’s EBITDA is in Macau and results there were in-line. The big news was the $8 special dividend announcement and the doubling of the quarterly dividend, both of which we think were above expectations. We continue to believe that WYNN is a best in class operator both internationally and domestically. In addition, Cotai will present a growth opportunity further down the road. We are increasing our price target to $131 from $120. Note, the increase to our price target isn’t a function of increasing estimates, we’ve scrubbed our model and it reflects a combination of factors most notably lower net debt levels.

We are lowering our forward estimates. In Macau, we think 3Q12 and 4Q12 are going to look similar to this quarter in terms of notional levels of gross gaming revenue, especially on the Macau peninsula. In our view, until VIP customers have a better sense for who will be in power in the PRC come year-end, and until there is more clarity on the global economy we just don’t see much to materially drive VIP volumes higher. In 2013, we think an inflection is possible, though WYNN is a bit capacity constrained. In Las Vegas, we continue to see a modest single digit rebound in gaming volumes though we are encouraged by WYNN’s growth in its non-gaming offerings. For the 4Q12, our EBITDA estimate (post corporate) goes to $351mm from $363mm. Finally, in 2013 EBITDA we are now at $1.58bn from $1.59bn. (please see Figure 3 on attached PDF for more detail on our estimates).

Request more information

Wynn Resorts (WYNN): 1Q12 earnings recap; low hold and low occupancy impact results

May 07 2012

Wynn Resorts’ 1Q12 EBITDA were below our estimates and the Street in Macau and also below our estimates and the Street in Las Vegas. In Las Vegas, results were a bit weaker than expected particularly on the hotel side. Occupancy was down significantly, as WYNN’s strategy appears to be sacrificing occupancy to hold rate for customers who can spend throughout the resort and not simply filing beds with heads. We think some of the softness was related to market wide weakness in March, and believe April and May were/are better. On the casino floor, slot handle was roughly unchanged and gaming drop increased by just over 3%. The comp was tough as last year the property held extremely high. The Macau results were essentially in-line. VIP hold was below the normalized level, which the company estimates cost them roughly $15mm-$18mm in EBITDA. On the slot side, slot win numbers continue to be very impressive with win per day over $870. All in, the quarter was essentially a slight miss with low hold a factor. Domestically, Las Vegas was up against a tough comp and we think March was an overall weak month. In addition, WYNN is willing to sacrifice some occupancy as cheap rates attract the wrong kind of customers who typically won’t spend throughout the property. In Macau, results were impacted by low hold. We were encouraged by outside the room spend and strong slot win per day. This stands in contrast to conventional wisdom that Macau is strictly a table-oriented market.

Request more information

Wynn Resorts (WYNN): Okada’s motivation and Wynn’s solution

January 12 2012

It is now widely known that Wynn’s largest shareholder, Universal Entertainment (6425 JP), formerly known as Aruze (19.65% stake, or $2.69bn of Wynn Resorts), has taken legal action (in Nevada) against Wynn. Kazuo Okada, Chairman of Universal and Director of Wynn has filed a petition to review the books and records of Wynn Resorts and select subsidiaries (more below). We believe Okada’s motivation could relate to Universal’s liquidity needs in order to develop casino resorts in the Philippines (Manila) and South Korea (Incheon), in addition to what he may have in mind for casino development in Japan should legislation eventually pass. Wynn has now noted that a dispute had arisen between Okada and the Wynn board related to Universal’s competitive Philippines pursuit and Okada’s suggestion(s) that Wynn would participate in such projects. It is our view that the relationship may have been strained for the last 1-to-2 years over these dynamics. Wynn’s solution, in our view, may be the repurchase of Universal’s shares, through a leveraged recap of sorts. Even if Wynn levered up to purchase the Universal AND Elaine Wynn stakes (for analytical sake), we estimate highly manageable net leverage of ~3.5x at the Wynn Resorts level, relative to 1.3x now (pro forma for the cash dividend).

Universal Entertainment’s possible motivation for legal action - Tokyo based Universal Entertainment is engaged in three primary businesses. These include its investment in Wynn Resorts ($2.69bn in “gross” value, or 120% of its $2.23bn in market capitalization), manufacture of pachislot and pachinko machines, and the development of its Manila Bay Resorts project in the Philippines for which it was granted a license in 2008 - with renderings that look extremely similar to a Wynn property. Based on our recent meeting with Universal management, we believe Universal’s financing needs are $1.5bn for the Manila casino resort development ($550mm in 2012 and $950mm in 2013). With an estimated $600mm in cash plus capital already contributed for land and early development, the total project budget is estimated to be $2.3bn. Universal has also talked about interest in building a casino in South Korea, which we note would require a minimum capital expenditure of $500mm (and is limited to foreign customers, based on ROK law). Therefore, we estimate that Universal needs to raise $1.5bn to $2.0bn for its own Asian gaming projects over the next two-to-three years. Based on Universal’s F12 (March) earnings budget, we estimate the company can generate cash of ~$300mm (seemingly including Wynn dividend proceeds and its ~13% share pachislot/pachinko business), which is heavily dependent on Wynn dividends. Universal also has negative net debt so it could also use credit to some degree. With scarcity in Philippine resort development financing however, our point is that Universal’s main source of funding is highly probable to be its Wynn Resorts holdings.

Wynn’s could lever up to acquire Universal’s stake - With a sharp bond market recovery off of late November lows, and an upsized MGM Resorts bond deal as a favorable proxy, we believe demand and support would exist for Wynn to lever up and purchase the Universal stake (in addition to Elaine Wynn’s stake if all parties are amenable to it). As the combined 34.3mm shares represent ~15 days of trading volume, we estimate Wynn could acquire both parties shares for discounted ~$3.3bn. This would result in net leverage of a manageable 3.5x relative to current pro forma net leverage of 1.3x.

Request more information

Wynn Resorts (WYNN): Thoughts on $5 Special Dividend

November 02 2011

Wynn Resorts announced a cash dividend of $5 per share on its outstanding common stock, a Special Dividend amounting to $620.9mm. The dividend will be payable on December 21, 2011 to stock holders of record on November 23, 2011. The size of the dividend slightly exceeded our expectation of $4 per share. Despite WYNN’s strong liquidity, which we estimate at $3.16bn as of September 30, 2011 and the capacity to issue a much larger Special Dividend, we understand the Board’s decision to presumably reserve capital for growth projects and general macro uncertainty. Our take is that numerous development opportunities have increased probabilities of occurrence (Cotai, Taiwan, Japan, ROK, Massachusetts, Florida, etc.). This is accented by a step up in cost of development capital and probable requirement for greater cash equity. If Macau were to slow, even in transitory fashion or otherwise, it would be prudent for WYNN to reserve sufficient development capital to execute on this atypically deep pipeline (should multiple projects exceed appropriate return thresholds).

Request more information

Wynn Resorts (WYNN): 4Q10 Preview

February 09 2011

We are forecasting total net revenues and EBITDA (post corporate expense) of $1.27bn and $327mm for 4Q10 and property EBITDA of $352mm (versus consensus of $335mm). This compares to consensus net revenues and EBITDA (post corporate expense) of $1.18bn and $288.1mm. Our higher estimates presumably capture greater rolling chip volume in Macau relative to consensus. We are also revising our Vegas estimates to capture anticipated market share gains and better market-wide growth.

Request more information