Wynn hurt by construction disruption

Wynn hurt by construction disruption

Thursday, November 3, 2016 Posted by Scott Longley
Building work at Palace blamed for shortfall

Shares in Wynn Resorts took a thumping on Wall Street after the third-quarter results missed expectations with the company blaming continued construction work around its new property in Macau for the revenue miss.

Speaking on the analyst conference call, Steve Wynn pointed out that with the building work continuing on the new MGM property on the Cotai Strip next door to Wynn and with the new light-rail system currently being completed it effectively means that the Wynn Palace property is “enclosed by either barricades or construction blockades of one kind or another.”

“It has tended to isolate our property on all four sides and it’s made access to the Palace temporarily highly encumbered,” said Wynn.

In terms of revenues, the results showed the two Macau properties generating revenues of $683m, missing consensus expectations of $734m. EBITDA in Macau also missed target at $177m versus the consensus estimate of $195m. The shares fell over 6% in after-hours trading.

Wynn told analysts the company was hoping that the short-term disadvantage of the construction work would be mitigated soon, though analysts at Union Gaming suggested the situation wouldn’t improve until the middle of next year.

Over at Wells Fargo, analyst Cameron McKnight noted that capacity constraints at the Wynn Palace, particularly with regard to mass tables, also played a part in the revenue miss. When the property opened in August, Wynn Macau was only allocated 100 extra new tables meaning the company was forced to relocate 250 tables from its existing property.

Union Gaming said it was adjusting its forecasts for next year to reflect the slower ramp up of revenues at the Wynn Palace. “Premium mass should begin to ramp at a rate in between VIP and non-premium mass, but the right marketing programmes and the right human capital will need to be put in place. With all of this in mind, we are right-sizing our 2017 estimates.”

Similarly, the team at Morgan Stanley said they expected the short-term picture was unlikely to improve but that EBITDA growth should resume in 2017 and on into 2018.

Back in Vegas, Wynn Resorts fared better with the earnings figure topping expectations. Adjusted property EBITDA hot $129m for the three months to the end of September compared with street consensus estimates of $121m. Slot handle was up 7.1% while table games revenues was affected by more volatility on the baccarat tables with table drop down 3% over the quarter.

Totally Gaming says: For all the talk of renewed optimism in Macau, the talk of the construction work in Cotai putting off visitors to the new Wynn property are a reminder that the Chinese gambling enclave is still very much a work in progress. The issues are temporary – suggesting the share sell-off is premature – but it does demonstrate that there will be bumps in the road for some time to come.

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