Wynn Macau’s results miss the mark as gaming boom cools

Lower income from resort hotels and retail outlets has crimped the casino operator’s quarterly earnings, disappointing investors

Key Takeaways：

• Wynn Macau revenues rose 6.3% to $870 million in the third quarter from the year-earlier period but fell 1.5% sequentially
• Per capita spending by visitors to Macau dropped 17% in the first three quarters from the same period last year　

By Lee Shih Ta

Macau’s gaming industry has been on a roll since Covid controls were lifted, but money is now getting tighter for its Chinese visitors.

The industry roared back to life last year as gamblers flocked to Macau to try their luck after the misfortunes of the pandemic years. However, the latest earnings from one major gaming company, Wynn Macau Ltd. (1128.HK), add to mounting evidence that the growth pace is peaking out.

While the casinos are still busy, visitors from mainland China are less inclined to splash out on treats such as fancy hotel rooms and fine dining during their stays, judging from third-quarter results released by the gaming company’s parent Wynn Resorts Ltd. (WYNN.US).

Wynn Macau’s revenues rose 6.3% to $870 million (6.22 billion yuan) from the same quarter a year earlier but fell 1.5% sequentially. Profits edged up 3% year on year to $260 million, based on adjusted property EBITDAR, a standard measure for the gaming industry. But the figure was 6.2% lower than in the preceding quarter, undershooting market expectations ranging from $270 million to $300 million.

The forecast-lagging results for a typically peak gaming season went down badly with investors, who pushed Wynn Macau’s share price down 2.6% in the following trading session. But the company is not the only gaming giant to feel the knock-on effects of sub-par growth in mainland China and a more cautious mood among consumers.

Using the same earnings measure, Galaxy Entertainment (0027.HK) reported third-quarter profits of $378 million, a 6% year-on-year gain but a 7% drop from the previous quarter. Third-quarter revenues at Sands China (1928.HK) sagged 1% year on year to $1.77 billion, while adjusted property EBITDAR fell 7.3% to $590 million from the equivalent period of last year.

Data released by Macau’s authorities put gaming industry revenue for the quarter at 55.6 billion Macau patacas (49.65 billion yuan), up nearly 14% on a year-on-year basis but down 1.4% from the previous three months.

In fact, signs of slippage were already showing up before the latest quarter. Macau’s gaming revenue fell 1.5% in the second quarter of 2024 compared to the preceding three months, mainly due to a 7.4% quarter-on-quarter drop in income from VIP gaming rooms.

Hotels and retail feel the pain

A new gaming law introduced this year has put tighter controls on agents, or intermediaries, who provide services for high rollers. After peaking above 200 in 2013, the number of intermediaries has halved from 36 in 2023 to just 18 this year. Under the new rules, the agents may only work with one licensed gaming operator and are barred from running their VIP gaming rooms in casinos or cutting revenue-sharing deals.

The Macau government is aiming to make the industry less reliant on high-end gaming and more focused on the main casino floors and resort services, but the shift has challenging consequences in the current economic climate.

An earnings analysis by Deutsche Bank found that Wynn Macau’s gambling business was holding up well but the outlook for non-gaming income streams, such as hotel rooms and retail services, was less promising. The company’s non-gaming revenue fell 8% in the third quarter from the same period a year earlier.

JP Morgan noted that revenue per available room fell 29% at the company’s Wynn Macau resort and 13% at the Wynn Palace resort compared with the third quarter of last year. Retail rental revenue at the Wynn Palace also fell 8% from the prior quarter, reaching only 74% of the takings in the same period of 2019, before the pandemic hit.

In fact, the number of Macau arrivals has been going up this year, but the visitors are starting to spend less per head during their stay. Official Macau statistics show arrivals in the first three quarters surged 30.1% from the year-earlier period, with total spending excluding gaming rising 8% to 56.21 billion Macau patacas.

Notably, per capita consumption plummeted 17% to 2,168 patacas and spending by visitors from mainland China fell even more sharply, by 21.7%.

Mainland China has always been the largest source of visitors to Macau. In the first three quarters of 2024, more than 18.21 million mainland Chinese visited the territory, up 36.3% from the same period of 2023 and accounting for more than 70% of overall arrivals.

Betting on a resort makeover

To gain an edge in a highly competitive market, the company is refurbishing some of its high-end gaming areas and offering new dining options.

Wynn Resorts CEO Craig Billings said the investments, including four renovated restaurants at the Wynn Palace and a makeover for the Chairman’s Club facilities, should add value to the company.

Franchise-related spending would reach $350 million to $425 million from 2024 to the end of 2025, mostly for work at the Wynn Palace resort, according to Chief Financial Officer Julie Cameron-Doe.

The weaker than anticipated earnings caused some analysts to lower their outlooks for Wynn Macau’s stock. Citi maintained its “buy” rating but trimmed its target price from HK$8.6 to HK$8.3. HSBC cut its target price by 17.6% from HK$8.5 to HK$7 while downgrading the stock from a “buy” to “hold”.

A key pricing measure for gaming companies is the enterprise value to EBITDA ratio. Using this formula, Wynn Macau’s multiple stands at 8.1 times, lower than the 12.1 times for Sands China, 11.8 times for Galaxy Entertainment and 9.6 times for Melco International (0200.HK) and just above the 7.2 times for MGM China (2282.HK).

The whole gaming industry is languishing at low valuation levels, although some investors may be looking out for a policy boost as Macau approaches the 25th anniversary of its handover to China, with President Xi Jinping due to attend a ceremony in December to mark the occasion.

Whatever the policy framework, Macau’s gambling industry will stay fiercely competitive, with pressure on Wynn Macau to deliver swift returns on its resort upgrades.

To subscribe to Bamboo Works weekly free newsletter, click here