Inside Asian Gaming

INSIDE ASIAN GAMING | October 2009 6 U nion Gaming Research, described as the onlyWall Street financial research firm based in Las Vegas, took gaming investors on a tour of Macau earlier this month. Bill Lerner, one of the founders of Union Gaming and formerly Managing Director—Senior Gaming & Lodging Analyst at Deutsche Bank Securities, led the visit. He tells Inside Asian Gaming some of what he learned. IAG : From an investor’s perspective, what, if anything, has changed in Macau from your previous visit in the spring? Bill Lerner : “The willingness to pay for future growth is more evident now. That’s certainly reflective in the multiple that the market is assigning to Wynn’s Hong Kong listing. I think the market believes that structural issues in Macau are truly transitory and that this is a market that will continue to achieve excess returns.” Some Hong Kong-based securities analysts are questioning the long-term sustainability of Wynn’s initial public offering (IPO) pricing. According to Bloomberg data, Hong Kong equities trade on average at 17 times company earnings whileWynnwas priced at double that. BL : “Using earnings multiples for casino operators is nonsensical. These are typically appreciating assets. But their non-cash depreciation and amortisation has the effect of understating earnings. That’s why multiples on an earnings basis look inflated. So what we [at Union Gaming Research] and what all gaming investors globally use is an enterprise value to EBITDA [earnings before interest, taxation, depreciation and amortisation] multiple. I would never talk about or publish a valuation for a casino operator using an earnings multiple. That said, the valuation for Wynn in Macau—in Hong Kong—whatever you want to call it—is certainly at a premium to the gaming industry multiples globally. “I can’t compare it [Wynn’s trading value on the Hong Kong stock market] with the general Hong Kong equities market. I can compareWynn’s trading though on ametrics basis and it’s at a material premium to where SJM and Galaxy are trading [on the Hong Kong index]. “I think investors assign a lot of value to Wynn’s brand and to Wynn’s execution in this [Macau] market. They are certainly Hotting Up Senior gaming analyst Bill Lerner tells Inside Asian Gaming why some overseas investors are turning more bullish on Macau