Wynn Macau’s Q4 Loss Expected, Strong Lunar New Year Performance Confirms a Solid Recovery

Wynn Macau’s 01128 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.

Wynn Macau has been known as a high-end iconic brand, with the VIP segment making nearly half of its gaming revenue mix in 2019. As of 2022, the share of VIP revenue fell sharply to 13% of total gross gaming revenue, and it is now lower than the 24% of the broader gaming sector. 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 to attract premium clients. Given the EBITDA margin of junket VIPs is relatively low at 9%-10%, compared with the 25%-35% for the mass market, we believe a 50% of former junket VIP revenue migrating to the company’s direct and premium mass market would help to offset the impact on EBITDA from closure of junket activities.