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Wynn Macau Has Robust Liquidity, But Shouldn’t Rush to Restart Dividend, Says Research Firm

Owing to cost reduction efforts and capital raises, Wynn Macau Ltd.’s financial position is sound. But a research firm cautions against the rapid resumption of a dividend program that was halted in March.

Inside Wynn Palace in Macau. A research firm said the operator should be cautious regarding the resumption of its dividend. (Image: Reuters)

The operator faces financial challenges this year before a modest recovery arrives in 2021, still contending with slack visitation to the world’s largest gaming center and sluggish VIP play. That indicates hasty dividend restoration could be problematic, according to Lucror Analytics.

Our fundamental credit bias on Wynn Macau is ‘negative’, on account of its weakened earnings,” according to the Singapore-based research firm. “We expect the company’s financial profile to deteriorate materially in fiscal year 2020, before recovering slightly in fiscal year 2021.”

Lucror is worried Wynn Macau will resume its payout before it’s able to return to generating free cash flow and sustain that status.

Analysts and investors typically like seeing a company pay dividends out of free cash flow because it indicates the firm is financially healthy and not taking on debt to fund shareholder rewards.

In March, the Wynn Macau and Wynn Palace operator scrapped its 2019 payout, saying at the time it couldn’t accurately project this year’s earnings and cash flow because of the coronavirus pandemic.

Parental Matters

The lack of a payout from the Macau business is meaningful for US-based Wynn Resorts (NASDAQ:WYNN) because the parent company controls 72 percent of the Asian unit.

In March, the Wynn Palace operator mentioned a special dividend could be possible at some point this year. But that’s appearing unlikely, as analysts push back gross gaming revenue (GGR) recovery expectations for the special administrative region (SAR) to 2022 from 2021.

Lucror said it’s concerned Wynn Macau “might resume dividend payments too quickly (i.e., before it is able to generate and sustain positive free-cash-flow), which would be highly credit negative.”

The Asian gaming group’s third-quarter earnings are likely to be dismal, as is the case with rival operators. But the situation is seen perking up in the current quarter, with Lucror saying Wynn Macau’s revenue could reach 45 percent of pre-coronavirus levels. That’s setting the stage for break-even earnings before interest, taxes, depreciation and amortization (EBITDA.

Dividend Cuts Galore

Over the course of the pandemic, companies across myriad industries turned to dividend cuts and suspensions to conserve cash, and the gaming space wasn’t immune to that trend.

Nearly every US-based casino operator that paid a dividend prior to COVID-19 either slashed or suspended those distributions, including Wynn Resorts. The Las Vegas-based firm announced the move in May. It will save $100 million each quarter it doesn’t have a dividend obligation.

Prior to the pandemic, Las Vegas Sands (NYSE:LVS) was the industry’s biggest dividend payer, and there’s chatter that if the operator proceeds with selling its Sin City assets, it could restart its payout. Beyond that, there’s little clarity regarding when domestic gaming companies will resume cash distributions to investors.

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