Lady luck smiles on Wynn Macau with surging gaming recovery

The casino operator was a major beneficiary of the city’s post-pandemic rebound, and is likely to further pare its debt load amid a sustained recovery this year

Key Takeways:

• Wynn Macau’s revenue rose more than fourfold last year to $3.1 billion, driven by a post pandemic rebound that boosted its gaming, hotel and restaurant businesses
• The casino resort operator’s strong performance among mainstream visitors offset declines for its VIP business, giving it a more balanced mix

By Ken Lo

China’s re-opening in 2023 juiced up the gambling industry in the historic city of Macau, where gross gaming revenue surged to 183.1 billion patacas ($22.7 billion) in 2023, more than four times the figure the previous year. Revenue kept powering ahead with 19.34 billion patacas rolling in during the month of January, setting the tables for a bumper year ahead for major players like Wynn Macau Ltd.(1128.HK).

In the first year after China lifted most of its pandemic restrictions, Wynn Macau’s revenue rose more than fourfold in 2023 to $3.1 billion, according to the annual financial statement from its majority shareholder Wynn Resorts Ltd. (WYN.US) filed late last month. The surge was powered by a strong rebound for its three main engines, namely gambling, hotel stays and restaurant traffic. 

While the company’s gaming revenue growth mirrors a broader rebound for an industry that is the lifeblood of Macau, we should also point out that revenue still has yet to fully recover to pre-pandemic levels from 2018 and 2019. Rival Sands China’s (1928.HK) recently released results also showed its revenue quadrupled last year to $6.53 billion, while MGM China Holdings’ (2282.HK) rose by an even greater 369% to HK$24.7 billion ($3.2 billion).

A comparison of these three local gaming giants shows that MGM China’s revenue grew significantly faster than Wynn Macau or Sands China. That may owe partly to a big jump in its number of permitted gaming tables from 552 at the end of 2022 to 750 by the end of last year, which it used to rake in more money from a flood of returning Mainland Chinese tourists.

Its recent surge lifted MGM China’s share of the market to 20% in January from 17.5% just a month earlier in December, while Wynn Macau’s share edged up 0.5 percentage points to 14% over the same period, according to a UBS report. Sands China and Galaxy Entertainment (0027.HK) both lost share, but Sands China remains the leader with 24% of the market.

Wynn Macau operates two resorts: Wynn Palace and Wynn Macau. Wynn Palace’s revenue increased more than fourfold from $410 million in 2022 to $1.89 billion last year, while Wynn Macau’s rose by a similar magnitude from $311 million to $1.21 billion over that time.

The company reported total adjusted property EBITDAR of $954 million in 2023, swinging back to profitability on that basis from a loss of $221 million in 2022. Wynn Palace and Wynn Macau reported adjusted property EBITDAR of $616 million and $338 million for the year, respectively, as their higher revenue was partially offset by higher operating expenses.

Despite the positive broader trends, Wynn Macau and its peers have experienced some painful adjustments in recent years after restrictions were tightened on high-rollers visiting Macao, dampening one of industry’s most important revenue sources. Changes to the city’s gambling law in June 2022 caused a seismic shift by allowing agents to only collect flat fees for bringing high rollers to Macau, rather than the older practice of giving them a percent of how much those gamblers spent.

Mass market fills the gap

With less high-rollers coming in, gaming enterprises like Wynn that traditionally focused on big spenders are shifting some of their focus to providing better and cheaper services to tap the lower end of the market. That’s reflected in Wynn Macau’s and MGM’s rising win rates for their mass market business in their latest reports, bringing them closer to win rates for the more mass-market-savvy Sands China.

In the VIP market, players must convert cash into “rolling chips” to place bets, and any chips they win are used to calculate a casino’s “rolling chip win rate” – an important indicator of profitability for the VIP market. Rolling chips are typically given to gamblers as credit and cannot be exchanged later for cash but must be gambled. By comparison, the mass market is mainly entertainment-driven, with cash-exchangeable chips used to place bets and a different chip win rate used to measure profitability.

Taking Wynn Macau as an example, in 2023, Wynn Palace’s VIP rolling chip win rate was 3.37%, up from 3.1% in earlier years, while Wynn Macau’s improved to 3.47% last year from 3.4%. That means, its rolling chip win rate last year was close to the higher limit of its past performance range. MGM Cotai’s VIP rolling chip win rate stood at 3.7%, while its MGM Macau’s was 3.1%.

For the mass market, the win rate for Wynn Palace was 22.4%, compared with a lower 17.7% for Wynn Macau. The win rates for MGM Cotai, MGM Macau and Sands China were 24.9%, 20.4% and between 17% and 24.9%, respectively, showing Wynn Palace and MGM China are the best performers in the mass market. 

It’s also worth noting that Wynn Macau’s shareholder equity is still negative. That means it has to source financing from its parent instead of being self-funded, which might affect its ability to pay dividends. Its latest financial statement shows Wynn Macau and its affiliates held $1.32 billion in cash at the end of last year. But their Wynn Resorts parent had $11.74 billion in outstanding current and long-term debt, including $6.74 billion owed by Wynn Macau.

A key measure of the price of gaming stocks is their enterprise value-to-EBITDA ratio. Wynn Macau’s stands at 47.7 times, while Sands China’s and MGM China’s are 116.2 times and 43.7 times, respectively. So, Sands China is not cheap, while MGM China’s lower figure means its stock may have more upside potential than Wynn Macau.

To subscribe to Bamboo Works free weekly newsletter, click here