Wynn Macau had an impressive 2Q by anyone’s yardstick, thanks to the smooth opening of Encore. Market share jumped in May and stayed high in June as VIPs flocked to the new hotel, even though the new gaming tables had been open for awhile already. It was a demonstration, if nothing else, of how important the art of hospitality has become in the gaming industry, even in rough-and-ready Macau. And it impacted the bottom line nicely, with ebitda coming in at US$216m, towards the top range of analysts’ forecasts and up 19% on the previous quarter – best in the market so far and likely to remain so. Nice enough for Wynn to declare a US$0.25-per-share cash dividend – the hallmark of a blue-chip company in this day and age.
Even though we cannot understand The Street’s disappointment – the stock fell in early trading after the results were announced – we do have a nagging feeling that something was missing in these results. Call it an under-outperformance. Expectations, our own included, were clearly too high, coming a day after Sands China reported. A few analysts, notably Praveen Choudhary at Morgan Stanley, have pointed out that Wynn is not pulling in the premium-direct business as aggressively as Sands China, and if its win-hold percentage had not been as high as 3.2%, the ebitda numbers would not been quite as stellar.
What we think might really be missing from all this, however, is simple conservatism: Steve Wynn is holding back because he sees recklessness all around him and will not follow suit. He has seen strong and steady growth in VIP volumes at his property thanks to a strong and steady relationship with his key room operators. He does a healthy premium-direct business, but he has never – unlike someone else – defiantly challenged the junket industry in Macau, knowing full well how difficult his life could become if he were to be alienated by people who are well-connected across the border. In 2Q, Sands China clearly overtook Wynn Macau in the premium-direct league tables. But we suspect Wynn sees it as a Phyrric victory.
The upshot of all this is that as rumors grind about MGM throwing out powerful incentives to major junkets to forsake Wynn Macau for its neighbor on the peninsula, president Ian Coughlan can afford to loosen his necktie after work each day while padding his pocket, which contains the waiting list of applicants for VIP table space on his property. He can also look at the competition and make sarcastic comments about the true quality of their accounts receivables.
Looking ahead, it was interesting to note Wynn’s comments about the size of his Cotai project: 62 acres, bigger than Lot 5&6. The man is not completely risk-averse, clearly. He might be looking at losing some share of GGR over the next three years as Galaxy and Lot 4&6 open on Cotai, but when he opens his own mega-resort, it will undoubtedly be a game-changer. Again.
Used with permission & copyright to IntelMacau
