Wynn Macau Earnings: Decent Recovery Across Segments, Further Uptick in May Golden Week

Wynn Macau’s 01128 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.

We think the shares are slightly undervalued as of market close on May 9. Wynn Macau has been known as a high-end iconic brand, with the VIP segment making nearly half of its gaming revenue mix during prepandemic 2019, the highest among Macao casino operators. As of first-quarter 2023, the share of VIP revenue fell sharply to 16.5% of total gross gaming revenue, and it is now lower than the 24.7% of the broader gaming sector. Management shared that it should have a market share of over 14% on a normalized VIP win-rate, which is consistent with its full-year 2019 levels. We think a migration of junket VIP clients to direct VIP and premium mass segments was the key driver, and Wynn’s high-end image and luxury facilities make it more competitive in attracting premium clients. This should help to ease some concerns that its market share will slide due to closure of VIP rooms and a 7% cut of gaming tables to 570.