Performance review

2Q24 results fell short of the market's agreed expectations

On August 7, Wynn Macau announced 2Q24 results: net revenue of 0.885 billion US dollars, up 15% year on year, down 11% month on month, and recovered to 75% of 2Q19; adjusted property EBITDA was 0.28 billion US dollars, up 14% year on year, down 17% month on month, to 82% in 2Q19, lower than Bloomberg's agreed forecast of 0.295 billion US dollars.

We believe that Wynn Macau's performance is mainly due to: 1) the decline in the market share of Wynn Palace and Wynn Macau gaming revenue due to the sale of newly opened properties under Galaxy and Melco; however, 2) midfield gaming revenue recovered to 120% in 2Q19.

Development trends

Highlights of the management performance conference call are as follows:

1) Management noted that the company's market share began to recover in July 2024 (within internal expectations), with strong midfield betting performance, while the hotel occupancy rate reached 99%; 2) The weak luxury sales environment continued to affect the company's non-gaming business; 3) Management noted that despite intense competition in the rebate environment within the industry, the company maintained a disciplined reinvestment rate level;

4) Construction of the Destination Food Court (a committed investment project related to gaming licenses) has begun, and management expects to open in 2025;

5) According to the company's plan, the total capital expenditure for 2024 and 2025 is in the range of 3.5 to 0.5 billion US dollars; 6) Management expects the company's average daily fixed operating cost to remain around 2.5 million US dollars (down 3% from the previous month, down 19% from the 2019 level);

7) Wynn Resorts (WYNN US), not Wynn Macau (1128 HK), will seek expansion opportunities in Thailand.

Profit forecasting and valuation

Taking into account the gradual intensification of the competitive environment among properties, we lowered our adjusted EBITDA forecasts for 2024 and 2025 by 3% to 8.642 billion and HK$9.182 billion, respectively. The current share price corresponds to 8.3 times 2024 and 7.5 EV/EBITDA in 2025. We maintained our outperforming industry rating and lowered our target price by 15% to HK$8.80 based on profit forecast adjustments and valuation revisions, corresponding to 10.5 times 2024 and 9.6 times EV/EBITDA in 2025. There is room for 61% 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.