Company Reports

Following Galaxy’s special interim and final dividend offerings, MGM China and Wynn Macau have followed suit and both declared final dividends on March 21. We view this as a positive surprise, which came in at least one year earlier than our expectations, suggesting that management groups are confident in Macao’s gaming demand recovery. We maintain our assumption that industry gross gaming revenue will rise to 85% of 2019’s level in 2024, up from 63% in 2023. With that, we believe Macao casinos will record meaningful improvements in profitability and cash flows in 2024. We also expect Sands China to resume its dividend program in 2024, while Melco Resorts and SJM will likely be later in 2025 given the still-stretched balance sheet for both companies.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

We maintain our fair value estimate of Wynn Macau at HKD 8.80 per share, following the firm’s decent fourth-quarter performance and a minor tweak to our earnings forecasts. The results came in slightly above our expectations, helped by higher win-rate and stronger sales growth at the firm’s peninsula property after a prolonged renovation closure. In addition, a favorable mix shift to higher-margin mass gaming and cost efficiencies also drove adjusted EBITDA margin 140 basis points higher from 2019’s level, to 32.6%. We expect the sales growth momentum to continue into the coming quarters, with rising airline capacity and various nongaming events across different casino properties to support visitor growth.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Despite a sequential improvement in both revenue and adjusted EBITDA, Wynn Macau’s third-quarter results missed market expectations. We think the weaker-than-expected performance at its peninsula property is the key drag, which is partly due to prolonged renovation closures. In addition, elevated debt coupled with the rising interest rates, has dampened the bottom line and Wynn Macau saw a net loss of USD 6 million in the quarter, compared with net profit of USD 61 million a quarter ago. We lower our 2023-25 net profit forecasts by 5%-21% mainly to incorporate higher financial expense assumptions, with limited tweaks to revenue and adjusted EBITDA. Consequently, we reduce our fair value estimate slightly to HKD 8.80 per share, from HKD 9.20. We think the selloff, with share prices falling sharply by 13% after the earnings release on Nov. 10, is overdone, and the shares are currently undervalued.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Wynn Macau’s decent second-quarter sales recovery was largely in line with industry performance, with revenue and adjusted EBITDA reaching 66% and 72% of 2019 levels, despite renovation closures at its peninsula property. Management indicated further uptick across segments into the third quarter, with daily mass gaming volume in July 20% higher than 2019 levels, along with robust hotel occupancy and healthy retail sales. With transportation capacity continuing to recover, we expect Wynn Macau to extend this robust growth momentum in the second half. We have raised our 2023-25 forecasts for revenue by 9%-15% and for adjusted EBITDA by 7%-24% after lifting our 2023 industry gross gaming revenue, or GGR, to MOP 181 billion, or 62% of 2019 levels (up from 50% previously), as well as a higher nongaming revenue assumption. Meanwhile, we have already anticipated normalization of GGR in our longer-term profit forecasts during 2026-27. Accordingly, we have raised our fair value estimate for Wynn Macau to HKD 9.20 per share from HKD 8.60.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Wynn Macau’s decent sales recovery was in line with industry performance, with revenue reaching 48% of 2019 levels, despite a lower win rate compared with 2019 and renovation closures at its peninsula property. A favorable mix shift toward the high-margin mass business, along with disciplined cost management, also drove its EBITDA margin to 26% in the first quarter. Management indicated further uptick across segments into the second quarter, with both mass and direct VIP gaming volume well above 2019 levels during the May golden week, and hotel occupancy rate at 95%. With transportation capacity continuing to recover, we expect Wynn Macau to extend robust growth momentum in coming quarters. We keep our 2023 revenue forecast at HKD 19 billion, or 52% of 2019 levels, but lift our 2023 EBITDA margin assumption to 26%, up from 13% in our earlier forecast, to incorporate a strong margin expansion outlook. This leads to a rise in adjusted EBITDA to HKD 4.9 billion in 2023, and a rise in our fair value estimate of Wynn Macau to HKD 8.60 per share from HKD 8.00.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Narrow-moat Wynn Macau’s share price is down around 5% currently to HKD 7.68 in Hong Kong trading, on negative market reaction to the casino operator’s plan to issue convertible bonds. While the market may not like the possible 8.1% dilution (assuming all bonds are converted into shares), we are neutral on the move as we think the alternative would have been for Wynn Macau to raise borrowings that carry a higher debt cost. We leave our fair value estimate at HKD 8.00 and would prefer more upside to it before being buyers. We do expect Sands China and MGM China to refinance debt that is coming due, but traditional bank borrowings remain our base-case funding assumption. Overall, we continue to expect an improving visitor and gross gaming revenue outlook to remain the main driver to share price performance.

Wynn Macau’s fourth-quarter EBITDA loss was well-anticipated by the market, and we’re encouraged by the company’s robust Lunar New Year performance, in which hotel occupancy hit around 96% and mass gaming volume at 95% of 2019 levels. In addition, management also indicated its average daily EBITDA rose to USD 4 million during the seven-day holiday, compared with USD 4.3 million per day on average in the first quarter of 2019, and that postholiday demand in both mass and direct VIP segments remains strong. We think these positive data points reaffirm our view that a solid recovery of Macao gaming demand is underway. We maintain our assumption of industry gross gaming revenue, or GGR, returning to 50% of 2019's level in 2023, up from 14.4% in 2022. We raise our fair value estimate for Wynn Macau to HKD 8.00 per share from HKD 7.80, after rolling our model one year forward. Our tweaks of earnings forecast are minor, and we expect Wynn Macau’s adjusted EBITDA to come in at a positive HKD 2.5 billion in 2023, compared with a negative HKD 1.7 billion in 2022. We think the shares are fairly valued as of market close on Feb. 15.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Our initial take on the release of Wynn Macau's and MGM China's fourth-quarter 2022 results today is that the guidance is favorable. We think the positive comments today from both Wynn Macau and MGM China should lift the Macao gaming sector as a whole. Wynn Macau's fourth-quarter adjusted negative EBITDA of HKD 59 million is largely expected. However, it's the solid January data that is likely driving its share price up more than 6% to HKD 8.88.

We have lowered our Morningstar Uncertainty Rating to High from Very High for the Macao gaming companies under coverage, as the removal of China’s COVID-19 restrictions from Jan. 8 should have removed the major hurdle that has been hindering Macao’s recovery over the past three years. Although it is likely that Macao and China will experience additional COVID-19 waves, which may cause demand to fluctuate, the evidence from other countries shows that the impact on the recovery trend was shorter and less impactful with each wave. We expect the same in Macao, and we have improved visibility around our existing base-case assumption that industry gross gaming revenue, or GGR, will return to 50% of 2019’s level, or MOP 145 million, in 2023, up from 14.4% in 2022. This is slightly higher than the Macao government’s estimate of MOP 130 million, reflecting a more upbeat outlook on the pent-up demand from both mainland China and Hong Kong.

As one of six casino licenseholders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

As expected, the Macao government granted the fresh 10-year gaming concession to the six existing casino operators on a provisional basis. We think the announcement will remove many of the remaining concerns on casino licenses. Although detailed terms of the contracts haven’t been disclosed yet, including the investment pledged by each company and nongaming activities each company planned to develop, we don’t expect material risks toward the finalization of the license grants by the end of December, as Macao’s gaming law amendment has concluded, with major changes in line with majority opinions.

As one of six casino license holders in Macao, Wynn Macau benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces and drive the top line for integrated resort operators like Wynn Macau. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

Wynn Macau’s third-quarter results were better than our expectations, with the adjusted EBITDA loss improving to USD 66 million from negative USD 90 million a quarter ago. We think this reflects a low base in the prior quarter, which was dampened by sharply lower win rates. In addition, a more aggressive cost-cutting effort and a USD 7 million bad debt credit also helped to improve its third-quarter adjusted EBITDA. The results, however, continued to reflect COVID-19 headwinds, as Macao gaming demand was hit by a two-week shutdown in July, which dampened industry gross gaming revenue, or GGR, to just 7.8% of the 2019 level. We expect industry GGR to improve from the worst of times in the coming quarters, following the resumption of e-visa travel to Macao from Nov.1, which we think is a significant step toward a durable recovery of Macao gaming demand.

Malaysia Genting Group’s participation in Macao’s gaming concession bidding surprised the market, which brings some uncertainty as to whether the existing players will win renewed licenses, given Genting’s strong presence in global gaming markets and successful track record in diversification of non-gaming business. Nevertheless, we think Genting’s bid is unlikely to threaten the existing players’ competitiveness in the tendering process, as the six have put two-decade efforts in supporting Macao’s economy and employment, which include more than two years’ downturn resulting from COVID-19 restrictions. We think it is unlikely for the Macao government to rule out any of the six, if they could meet the requirements of the new concession tendering process. As such, our base-case scenario is unchanged, which assumes all six existing casino operators would be granted new gaming concessions, and we keep our fair value estimates of Macao casino operators unchanged.