Wynn Resorts Forecasts Macau Slowdown, Analysts Downplay Concerns
Posted on: November 12, 2018, 10:39h.
Last updated on: November 12, 2018, 10:39h.
Wynn Resorts CEO Matt Maddox delivered investors a rather gloomy forecast for Macau during last week’s third quarter conference call, but not all analysts are sold on the idea that the gaming enclave is headed for a slowdown.
Maddox revealed that since Golden Week kicked off October, the company’s three Macau casinos have struggled.
We’ve noticed that during the midweek, it’s been quite choppy, and the weekends have been sporadic. We can have one big weekend, maybe one or two days are big as opposed to all three. And so what we’ve seen post-Golden Week has been a slowdown.”
The chief executive predicted that Wynn earnings from Macau in the fourth quarter would be 20 percent lower than the general Wall Street consensus. That sent shares tumbling, but analysts at Deutsche Bank say Maddox is being “overly conservative.”
“We felt Q3 Macau results were broadly better than expectations, with property EBITDA (earnings before interest, taxes, depreciation, and amortization) of $409 million coming in ahead of consensus and our forecast.” Deutsche Bank maintained a “buy” rating for Wynn Resorts, but greatly lowered its price point from $183 to $123.
Maddox says the biggest slowdown is being experienced in the premium end of its business in Macau, and that’s the segment Wynn Resorts is heavily focused. Wynn Macau President Linda Chen has said in the past that the company’s emphasis is “on the quality of guests instead of the quantity.”
Credit Suisse analyst Cameron McKnight says Wynn’s continued focus on the VIP raises concerns in the months ahead.
“The company noted that it does not believe it is losing share. This means their guidance is either extremely conservative or the market has turned negative in November and December,” McKnight explained.
The Credit Suisse analyst points to trends in recent years that show Macau gaming revenue slows many months after certain key economic indicators ease in mainland China.
Specifically, McKnight says gaming slows about 15 months after credit squeezes, and eight months after there’s a dip in housing prices. The Chinese government began tightening credit about a year ago, and the housing prices are down about six percent over the last 12 months.
Along with credit and the housing market, another concern is a potential slowing in the overall Chinese economy due to the ongoing trade war with the US.
After the Chinese government began cracking down on junket companies loaning high rollers money to gamble with in Macau, many casino resorts gave more attention to the mass market.
The mass market is the long-term future of Macau, because they’re driving the profit growth,” Jefferies analyst David Katz said this month.
The overhaul has rebounded Macau. Following three years of annual gaming win declines between 2014 and 2016, the enclave posted an increase in 2017, and will again this year.
October’s $3.38 billion haul was the largest win for casinos in four years. With two months to go in 2018, gross gambling win stands at $31.16 billion, a 14.3 percent year-over-year gain.
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