WYNN 2Q12 earnings recap; in-line quarter ex hold, lowering estimates in Macau
On the surface, Wynn Resorts’ 2Q12 EBITDA was below our estimates and the Street. The miss was primarily due to poor hold in Las Vegas, and normalizing hold in the period results were relatively in-line with the Street and above our estimates. In Macau, results were below our admittedly high estimate heading into the print and slightly below the Street. Both the VIP and mass segment were down in Macau, likely a reflection of new in-market competition and softer macro trends. On the slot side, handle was down 22% to $1.2bn. The company noted that aggressive promotional activity on the gaming floor is now spilling into the slots segment. That said win per day was still above $750.
Domestically, Las Vegas was up against a tough comp and this was compounded by extremely low hold. WYNN’s Las Vegas operations held 15%, which is 750bps lower than the midpoint of its normalized range. Notably, in April the property lost money in Baccarat for the month. We estimate that low hold negatively impacted EBITDA results by roughly $30mm-$35mm. On the hotel side, RevPAR was up 5.6% to $254 as a 5.8% increase in room rate offset a 160bps decline in occupancy. A bright spot in Las Vegas was the F&B segment as revenues rose 9.8% to $138.4mm driven by the property’s nightclub offerings.
WYNN did benefit from a positive accounting change related to bad debt in the quarter. A focus on the call was this notable change to the company’s collection policy, which resulted in a positive $17.3mm impact from doubtful accounts on the P&L. The charge was split 2/3 from Macau and the balance (1/3) from Las Vegas. Essentially, the company extended the timeline to collect bad debts, noting players have been settling later, but paying nonetheless. Note, WYNN has historically maintained a conservative and prudent collections policy, and we don’t think extending the collection window changes that.
All in, the quarter was essentially in-line. There weren’t any major developments to report. WYNN’s land concession was officially Gazetted in early May and the project will carry a price tag of $3.5bn-$4bn and have 2,000 rooms. Macau is becoming increasingly competitive and WYNN continues to maintain a hard line with respect to increasing junket commissions, commission advances, etc. In Las Vegas, slot handle and RevPAR were both up in the mid-single digits, and table games were impacted by low hold. We continue to believe that WYNN is a best in class operator, has a great balance sheet, and Cotai will present an avenue for growth down the road. However, given lingering macro and competitive concerns in Macau and less relevance in Las Vegas, we would remain on the sidelines here.
2Q12 consolidated recap
WYNN reported 2Q12 net revenues of $1.25bn (-0.6% y/y), compared to our estimate of $1.40bn and Street consensus of $1.35bn (see Figure 1 on attached PDF). Total property EBITDA was $384.1mm (-14.4%) vs. our estimate of $429.0mm and Street consensus of $413mm. Adjusted EBITDA was $361.4mm (-15.2%) vs. our estimate of $402mm and Street consensus of $397mm. Adjusted EPS was $1.38 compared to $1.60 in the prior year quarter. In Macau, reported property EBITDA was $302.2mm, which was $2.8mm below Street consensus. Las Vegas EBITDA was $81.9mm, which was $27.1mm below consensus. Though, normalized for bad luck EBITDA would have been roughly $115mm or $5mm- $6mm above consensus.
Macau 2Q12 recap
In Macau, Wynn reported a 7.1% decrease in net revenues to $907.6mm, while EBITDA decreased 3.9% to $314.3mm. The top-line weakness was driven by a 7.2% y/y decrease in VIP table games drop to $30.3bn and a 2.7% decrease in mass market drop to $690.3mm. Note, the number of mass market table games were down 10%. VIP table games win was 2.79%, toward the lower end of the expected range of 2.7%-3.0%. Finally, slot handle decreased 22.1% y/y to $1.2bn, while slot win per day decreased a more modest 4.9% to $752.
Las Vegas 2Q12 recap
Wynn Las Vegas reported an 11.6% decrease in net revenues to $345.6mm and 38.3% decrease in EBITDA to $81.9mm. Again, Wynn held extremely low. Slot volume was up 3.2% to $707.8. Table games drop increased 7.6% to $575.6mm.
Room revenue increased 5.6% y/y to $96.2mm. ADR increased 5.8% to $254, while occupancy decreased 160bps to 87.6%. The company’s strategy has been to hold rate firm to attract the right kind of customer for the property. On the non-gaming side, all in gross revenue increased 5.5% to $290.7mm.
Updated estimates and lowering 2012 & 2013 EBITDA
We are lowering our forward estimates. In Macau, we think 3Q12 and 4Q12 are going to look similar to this quarter in terms of notional levels of gross gaming revenue, especially on the Macau peninsula. In our view, until VIP customers have a better sense for who will be in power in the PRC come year-end, and until there is more clarity on the global economy we just don’t see much to materially drive VIP volumes higher. In 2013, we think an inflection is possible, though WYNN is a bit capacity constrained. In Las Vegas, we continue to see a modest single digit rebound in gaming volumes. For the 3Q12, our EBITDA estimate (post corporate) goes to $348mm from $393mm. For 2012, our new EBITDA estimate is $1.43bn from $1.54bn. Finally, in 2013 EBITDA we are now at $1.59bn from $1.79bn. (please see Figure 3 on attached PDF for more detail on our estimates).
Valuation
Shares of WYNN are currently trading at 10.3x our 2012 and 9.0x our 2013 estimate. This compares to its large cap US and Asian peers averaging 11.0x 2012 EBITDA (MPEL at the lower end at 7.9x and Sands China on the higher end at 12.3x) and 9.0x 2013 EBITDA.
