1Q24 performance was better than the market's unanimous expectations
Wynn Macau announced 1Q24 results: net revenue of US$999 million, up 66% year on year, up 10% month on month, and recovered to 80% of 1Q19; adjusted property EBITDA was US$340 million, up 118% year on year, up 14% month on month, and recovered to 88% in 1Q19, better than Bloomberg's agreed expectations of US$319 million.
We attribute Wynn Macau's performance to: 1) benefiting from the high-end midfield sector, where midfield gaming revenue recovered to 132% in 1Q19; 2) Wynn Palace's market share increased from 7.8% in 4Q23 to 8.4% in 1Q24; 3) cost control led to an increase in EBITDA profit margins.
Development trends
Highlights of the management performance conference call are as follows:
1) Management notes that in April 2024, the average daily midfield bet amount increased 30% year-on-year, and the hotel occupancy rate reached 99%; 2) During the May Day holiday in 2024, the average daily midfield bet amount reached the 2024 Spring Festival level (30% increase from the same period in 2019); 3) Management notes that the competitive environment for rebates in the market is still fierce; 4) Construction of the Food Court (license commitment investment project) has already started; 5) Management expects the total capital expenditure for 2024 and 2025 to be in the range of US$350-500 million; 6 ) Management expects average daily fixed operating costs to remain at $2.6 million (down 14% from 2019 levels).
Profit forecasting and valuation
Taking into account faster business recovery and improved profit margins, we raised our adjusted EBITDA forecasts for 2024 and 2025 by 5% and 6% to HK$8.848 billion and HK$9.545 billion, respectively. The current stock price corresponds to 9x EV/EBITDA in 2024. We maintain our outperforming industry rating and target price of HK$10.30, which corresponds to 11 times EV/EBITDA in 2024, with room for 34% increase compared to the current stock price.
risks
Business recovery has been slower than expected; increased competition has led to a decline in market share.