3Q24 results fall short of consistent expectations

On November 4, Wynn Macau issued an announcement announcing 3Q24 results: net revenue of US$0.872 billion, up 6% year on year, down 2% month on month, and recovered to 81% in 3Q19; adjusted property EBITDA was $0.263 billion, up 3% year on year, down 6% month on month, recovering to 87% of 3Q19, below Bloomberg's agreed expectations of $0.28 billion. We attribute Wynn Macau's performance to: 1) total gaming revenue market share remained flat month-on-month (12.7% in 3Q24 compared to 12.6% in 2Q24); 2) an increase in marketing rebate costs.

Development trends

Highlights of the management performance conference call are as follows:

1) Management pointed out that midfield betting volumes continued to grow healthily in October 2024 (driven by a 30% year-on-year increase in midfield bets during the 11th Golden Week), while direct VIP transcoding was strong, and the hotel occupancy rate reached 99%;

2) Management plans to refurbish and expand the high-end midfield gaming area (Chairman Meeting Club) of Wynn Macau and Wynn Palace;

3) The company is expected to fully apply smart gaming tables in 1Q25. Management believes that this will ensure that the company maintains current profit margins through more accurate reinvestment and marketing ratios in a competitive market environment;

4) Management plans that Destination Food Court (license related investment project) will open in mid-2025, while Wynn Palace will add a new performance center; 5) Management expects total capital expenditure in 2024 and 2025 to be in the range of 0.35-0.425 billion US dollars (previously estimated at 0.35-0.5 billion US dollars);

6) Management expects the average daily fixed operating cost to remain at $2.55 million (flat from month to month).

Profit forecasting and valuation

Taking into account plans to build a high-end gaming area, we reduced our adjusted EBITDA forecast by 3% and 5% to HK$8.491 billion and HK$8.556 billion for 2024 and 2025. The current share price corresponds to 8.9 times 2024 and 8.6 times 2025 EV/EBITDA. We maintain our outperforming industry rating. Considering the industry's valuation recovery, we maintain a target price of HK$8.80, which corresponds to 10.6 times 2024 and 10.3 times 2025 EV/EBITDA, with 41% upside compared to the current stock price.

risks

Business recovery has been slower than expected; increased competition has led to a decline in market share.