HONG KONG — Wynn Macau Ltd. said Wednesday that it eked out a small increase in net profit last year due to cost-cutting measures, though revenue fell as the global economic downturn, a swine-flu outbreak and mainland China visa restrictions weighed on its operations.
The casino operator said that the operating environment in Macau, the world’s biggest gambling market by revenue, began improving in the second half last year. That improvement continued into this year, with gambling revenue in the former Portuguese enclave jumping nearly 70% in January and February from the same period last year, according to media reports.
Wynn Macau, which listed in Hong Kong in October, said its net profit for the 12 months ended Dec. 31 was 2.07 billion Hong Kong dollars (US$267 million), in line with a forecast it made in February and up 1.4% from HK$2.04 billion in 2008.
“We have carefully managed our labor force and aggressively negotiated with many of our vendors to secure lower rates on existing contracts, and are continually reviewing the cost and efficiencies at our property to identify further opportunities to reduce costs during these uncertain economic times,” the company said in a statement.
Casino revenue fell 5% to HK$13.19 billion last year from HK$13.88 billion in 2008; total revenue slipped 4.3% to HK$14.08 billion from HK$14.71 billion.
Wynn Macau, a unit of Wynn Resorts Ltd., didn’t recommend a final dividend.
Its result comes after Las Vegas Sands Corp.’s Macau unit, Sands China Ltd., reported this month a 22% rise in 2009 net profit to US$213.8 million, from US$175.7 million in 2008.
Wynn Macau said it expects to open an expansion of its flagship Macau project in April. The Encore at Wynn Macau will add about 410 luxury suites and four villas, gambling space, restaurants and retail space, it said.
The company also said it is awaiting approval from the Macau government for the right to lease an approximately 20.8-hectare site in the Cotai area to build an integrated casino and resort of up to 6.9 million square feet. But “the specific parameters of any potential Cotai project, including whether such project is to be built at all, are subject to change.”
Last week, Macau Chief Executive Fernando Chui said in his first policy speech that he will review casino projects to promote the healthy and orderly development of the city’s gambling industry as gambling revenue continues to soar. He also said the government is considering taking back land allocated for casinos if developers have no proper plans to build on the sites.
The Chinese government has urged Macau’s leaders to rein in the city’s rapid gambling industry growth because of concerns about social instability and fears that too many mainland Chinese are gambling away their wealth in Macau, the only place in China where casinos are legal.
Beijing has also made clear it wants Macau to diversify its economy away from the gambling industry, which currently contributes around 70% of government revenue.
Aaron Fischer, head of Asian consumer and gambling research at CLSA, said: “We are very keen to hear more about the company’s plans for Cotai, which we believe will become the center of gravity for Macau. They’ve got quite a big site on Cotai but we’re not sure the market’s ready for something that size targeting the very high end,” he said.
Citigroup, which has a “sell” recommendation on Wynn Macau, wrote in a recent report that it expects the opening of Encore Macau to generate little revenue growth for the company, and is concerned about increased competition arising from Sands China Ltd. and Galaxy Entertainment Group Ltd. opening new establishments on Cotai in 2011.
The brokerage firm also said it believes Wynn Macau is the most exposed to competition from Singapore, which recently entered the Asian gambling market.
“Although [Wynn Macau] management continues to indicate that Asean makes up around 5% of gaming revenue, our local junket contacts suggest that this number could be materially higher,” Citigroup wrote.
But Nomura, which has a “buy” rating on Wynn Macau, said concerns about Singapore casino openings posing severe risks to Wynn Macau, especially its Asean VIP business, are overdone, and likely strong statistics for Macau’s gambling market in coming months as well as the company’s new casino opening will spur the stock higher.
“Wynn Macau’s high-end market positioning has often caused it to be misinterpreted as a VIP-focused casino. In fact, Wynn Macau not only has the second-highest mass market share in Macau by property, but it also has one of the most profitable mass gaming businesses,” Nomura said in a recent report.
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