WYNN 2Q2012 PREVIEW

We're below the Street but so is the whisper 

While we're below the Street, we're not making a negative call into the Q.  WYNN has fallen 28% since April 27^th (shortly after they reported 1Q12 results) and is 44% off its 52 week high.  Last week, at least five analysts slashed their estimates for Wynn and many of the other Macau names.  Wynn Resort’s stock is now trading at less than 9x 2013, and that’s before any consideration for Wynn Cotai (although it does assume that the 24MM Okada shares stay “redeemed”).  We are the first to acknowledge that valuation doesn’t always matter with the Macau names, but this is about as cheap as the company has traded in some time. 

We estimate that Wynn Resorts will report $1.28 billion of net revenue and $367MM of EBITDA, 5% and 6% below the Street, respectively.  WYNN could actually beat the new lower estimates for 2H12 and even 2013 looks reasonable.  July market share has already improved considerably and June was better than May.  While we aren’t ready to go long the Macau names until a positive catalyst emerges, valuation suggests that downside from here, while possible and likely probable, could be limited. 

We estimate that Wynn Macau will produce $910MM of net revenue and $283MM of EBITDA (5% below consensus)

• Net casino revenue of $853MM
  • $587MM of net VIP win
    • Assuming 10% direct play, RC volume of $30.8BN
      • Down 6% YoY—the first YoY decline since 2Q09; and
      • Down 8% QoQ—the first QoQ decline since opening
    • 2.74% hold
  • Rebate rate of 84bps or 30.5% on a rev share basis
  • The properties historical hold rate since opening has been 2.93%.  If Wynn held at its historical hold rate in 2Q, net revenues and EBITDA would be $41MM and $10MM higher, respectively
• Mass win of $202MM, a 5% YoY increase but a 6% sequential decline
• Slot win of $64MM, down 14% YoY and 13% QoQ
• $58MM of net non-gaming revenue
  • Room revenue:  $29MM
  • F&B:  $25MM
  • Retail & other:  $50MM
  • Promotional allowances:  $49MM
• $500MM of variable expenses
  • $433MM of taxes
  • $58MM of gaming promoter expense assuming a blended commission rate 42.7%
  • Recorded non-gaming expenses of $20MM
• Fixed expenses of $108MM, flat QoQ and up 6% YoY

We’re projecting $366MM of net revenue and $100MM of EBITDA for Wynn Las Vegas (8% below consensus)

• Net casino revenue of $130MM and operating margin of $67MM
  • Table win of $112MM
  • 5% increase in table drop to $561MM
  • 20% hold rate
  • $42MM of slot win
  • 1% increase in drop to $692MM
  • 6.1% win rate
  • $25MM discounts & rebates or 16% of gross casino win (compared to 18% in 1Q)
  • Casino expenses of $72MM, up 3% YoY and 9% lower QoQ
• $278MM of non-gaming revenue
  • Room revenue of $89MM
  • RevPAR:  $206 (ADR: $252/ Occ: 82%)
  • CostPAR:  $85.26
  • F&B:  $108MM revenues at a 42% operating margin
  • Entertainment, retail, & other:  $60MM at a 37% operating margin
  • $42MM of promotional spending or 32% of casino revenue
• SG&A:  $48MM (compared to $47MM last quarter)

Other assumptions:

• Corporate expense:  $16MM
• D&A:  $92MM
• Stock comp:  $6MM
• Net interest expense:  $76MM