Despite a very entertaining conference call – for a smorgasbord of reasons – WYNN’s quarter didn’t blow us away and we wonder how much upside there is to the numbers.
Was it good enough? Probably not. The special dividend was more telegraphed than a Brett Favre pass (this year). Sure, Macau EBITDA climbed 54% YoY but the market was up huge. On a sequential basis, Wynn’s Macau EBITDA was actually down 8% versus LVS, MPEL, and MGM, which were up +9%, +86%, and +36%, respectively.
As we’ve written about in the recent past, Encore has just not been that additive. MGM and possibly Singapore – Wynn has the highest concentration of players from southeast Asia in Macau – have taken share. Contrary to popular belief, MGM isn’t buying the business through higher commissions. Rather it is extending more and longer duration junket credit and simply running the property much more effectively – thank you Mr. Kwong.
Macau has a lot of growth and Wynn will flourish. However, the stock has had a huge run and we don’t see any near term catalysts now that the Golden Week fueled month of October is past and the special dividend has been announced. More supply is coming on next year and overall market growth is slowing. Market share may finally be important and on that metric, Wynn may lag.
The following is our analysis of the quarter:
WYNN 3Q 2010 Review
Wynn Macau net revenues were $14MM below our estimate while EBITDA was $7MM below our estimate
- RC volume was $300MM above our estimate due to an increase in direct play levels to 13% from 11% last quarter
- Gross win was $2MM better than we estimated but net $431MM was $11MM lower than our estimate due to the rebate rate being 5 bps higher at 89bps of RC or 31% of hold vs our estimate of 29%
- We calculate rebate as the difference between gross gaming revenues calculated at $821MM and net casino revenues of $627MM (total casino revenues less disclosed casino revenues in Macau)
- Mass win was exactly in-line although drop was $22MM lower than we thought while hold was 80bps better
- Slot win was $2MM lower than we estimate due to slightly softer slot handle
- We estimate that fixed expenses increased to $102MM [either that or we saw a commission increase- won’t know until the filing comes out for Wynn Macau] from $87MM in 2Q2010
Las Vegas net revenue beat our estimate by $8MM and EBITDA by $11MM
- Table drop was $25MM below our estimate but hold was 3.8% better which is why table revenues beat our number by $16MM. For your reference, the 10 quarter hold average is 20.4%, and using this average, revenues would have been $13MM lower
- Slot drop decreased 18.6% vs. our estimate of -10%. Slot win was $7MM lower than our estimate.
- Casino discounts were 15% of gross casino win or $25MM
- Operating expenses only increased 1%, helped by declines in bad debt expense, lower SG&A (flat with last Q) and better room margins driven by an uptick in ADR
- D&A was $5MM below our estimate, declining $2MM sequentially despite having a full quarter of Encore Macau depreciation
- Interest expense was $6MM above our estimate and increased $7MM sequentially