THOUGHTS ON THE WYNN MOVE

It was WYNN’s turn to make the big move yesterday. Some of the move was for legitimate reasons, some not so much.

WYNN climbed over 8% yesterday even after a big October move.  Here is what we think were the drivers:

  • October revenues were off the charts in the first 10 days and Wynn’s market share improved from September
    • The numbers were indeed terrific and implied a HK$20 billion (+65%) month even after normalizing post Golden Week revenues
    • WYNN’s table market share for the first 10 days was 14.2% which is higher than September’s 12.0% share
    • However, 14.2% is still right around pre-Encore averages so it shouldn’t be something to get excited about
    • As long as Macau keeps growing like it has market share probably won't matter
  • Reports of US$125m in EBITDA over Golden Week
    • We heard this rumor yesterday and we think it is insane
    • We know Wynn generated HK$1.2 billion in the first 10 days of October which implies around US$35m in EBITDA so not even close under any aggressive scenario
  • September market share loss was due mostly to hold percentage
    • Rolling Chip share actually declined 1% from August so they did lose VIP volume share
    • Mass revenue share went up sequentially so that was a positive
  • Vegas carryover from Friday
    • Las Vegas Strip revenues were released on Friday - up over 20% in August
    • Baccarat revenues drove the growth
    • If WYNN captured its fair share of the Baccarat business – its Q3 moved from an in-line quarter to a nice beat
    • However, we are hearing that MGM held well which would imply a low hold at Wynn since Baccarat hold percentage was below normal
  • Special dividend – this remains a possibility and has been used to explain recent moves in the stock
  • Short covering
    • 23% of the float was short
    • This likely played a role

So that’s what we are hearing/thinking on WYNN.  It seems that the stock could back off over the near term as the short covering abates and investors realize that $125 million in EBITDA for 10 days is near impossible.  Moreover, anecdotally, we are hearing that business levels and traffic slowed demonstrably this past weekend, even below normal levels.  The Street is clearly expecting HK$20b+ in October gaming revenues.  The quarter is definitely looking better than it did a week ago but it looks like the stock will have a choppy ride for the rest of the month.