Analyst Note| Dan Wasiolek |
While Wynn’s third-quarter sales in Macao (76% of 2019 EBITDA) were down 94%, near the 93% decline posted by the gaming industry, we expect the region to rebound in the final months of 2020 and recover to around 87% of 2019 levels in 2021, as easing visa and coronavirus test restrictions take hold. In fact, narrow-moat Wynn noted that its October and November to date traffic volume was around 30% of pre-COVID-19 levels, up from the 10% mark during the third quarter. Also, mainland China (about 70% of 2019 Macao traffic) domestic travel traffic reached 79% of 2019 levels during the Golden Week holiday (Oct. 1-8), which we think provides evidence that the desire to travel is intact once more easily permitted. As a result, we estimate that Macao industry revenue can return to 35% of year-ago levels in the fourth quarter, which should allow operators to generate positive cash flow. Still we see 2020 finishing down 78%, versus our mid-50% decline estimated in July. Our lower near-term Macao demand forecast is expected to reduce our Wynn $110 fair value estimate around a high-single-digit percentage, leaving shares undervalued.