GGRAsia – Wynn Palace table grant spurs JP Morgan’s EBITDA cut

Wynn Palace table grant spurs JP Morgan’s EBITDA cut

Aug 22, 2016 Newsdesk Latest News, Macau, Top of the deck

A brokerage says it is reducing its estimates for Macau casino operator Wynn Macau Ltd’s earnings before interest, taxation, depreciation and amortisation (EBITDA) for the period 2016 to 2018.

JP Morgan Securities (Asia Pacific) Ltd said the adjustment was in the light of the new-to-market live dealer table allocation by the Macau government for the casino firm’s US$4.2-billion Wynn Palace resort (pictured), a property open from Monday.

“We lower 2016 to 2018 estimated EBITDA by circa 3 percent to 5 percent to reflect confirmed table grant (150 new tables) and table shifts between properties, in turn leading to bigger cannibalisation than we had forecast,” stated a Monday note from analysts DS Kim and Daisy Lu, following a preview visit to the property.

The Macau government said on August 12 it had approved 100 new-to-market live gaming tables for the opening of Wynn Palace; all for the mass-market segment. The company would be granted an additional 50 new-to-market tables in two separate phases: 25 tables on January 1, 2017; and the remaining 25 on January 1, 2018.

Wynn Palace opens with approximately 350 gaming tables: Wynn Macau plans to transfer 250 tables from its property on the peninsula to the Cotai property.

The firm had previously mentioned Wynn Palace had capacity to accommodate 500 tables. Steve Wynn, chairman of Wynn Macau and the parent firm Wynn Resorts Ltd, stated at a press conference at Wynn Palace on August 17 that the property had capacity for 400 tables.

JP Morgan said Wynn Palace was opening with two “lounges” for players in the premium mass segment – people that bet in high minimums using cash rather than via the credit used by traditional VIP gamblers. A note the same day from brokerage Morgan Stanley said Wynn Palace was opening with 93 premium mass tables.

VIP offer

JP Morgan reported that the new property had approximately 70 VIP tables, including three junket rooms, one room for house-managed VIPs – also sometimes referred to as ‘direct’ VIPs – and “a few private salons”.

GGRAsia has learned from a source that junket investor Tak Chun Group – described by investment analysts as one of the ‘big three’ in the Macau VIP market – is to operate a total of 15 VIP gaming tables at Wynn Palace. Suncity Group – another of the ‘big three’ – has confirmed to GGRAsia that it is opening VIP facilities at Wynn Palace; at Sands China Ltd’s Parisian Macao when it opens on September 13; and at the Melco Crown Entertainment Ltd majority-owned Studio City.

Mr Kim and Ms Lu of JP Morgan noted on Monday regarding Wynn Palace: “It wasn’t clear if its VIP and/or premium mass areas allow smoking at tables… we wouldn’t be too surprised even if it doesn’t have any smoking tables (similar to the properties that opened last year). That said, players can very easily find places to smoke near gaming tables anyway, either [in] smoking lounges (main floor) or [via] outdoor balconies (VIP and premium mass lounges).”

The Macau government banned in October 2014 smoking on casino mass floors. An exception was made for tobacco use in enclosed smoking lounges – facilities without gaming – located on some casino mass-market floors in the city. Having a cigarette while gambling is at present still allowed in VIP rooms.

The Macau government in 2015 submitted to the city’s Legislative Assembly a bill proposing a total ban on smoking inside casinos. Legislators approved the first reading of the bill in July last year.

Referring to the Macau government’s repeated calls for new casino resort projects to introduce non-gaming elements to help diversify the city’s appeal to tourists, JP Morgan stated of Wynn Palace: “It doesn’t have a lot of ‘non-gaming’ per se; but its substantial performance lake and surrounding cable-car should still work as ‘must-see’ attractions…”

Morgan Stanley analysts Praveen Choudhary, Alex Poon and Thomas Allen noted Wynn Palace had 200,000 square feet (18,600 sq metres) of retail space, “let with a rental rate of approximately 15 percent”. They added that the hotel’s 1,700 rooms were “over 80 percent full in the first few weeks”.

“Hotel rates command a premium to most hotels in Macau and are 20 percent to 30 percent above its own [Macau] peninsula property’s,” stated the Morgan Stanley team.

“It should definitely gain meaningful market share from existing casinos, but the speed of ramp, cannibalisation of Wynn [Macau casino hotel on the] peninsula, excess capacity in the near term, and weaker premium market are concerns,” said the institution.

Investment bank Credit Suisse AG stated in a Monday note it thought the opening of Wynn Palace would most affect mass-market gambling business at Melco Crown’s neighbouring property, City of Dreams Macau; and VIP business at Galaxy Entertainment Group Ltd’s Galaxy Macau resort on Cotai.

Credit Suisse analysts Kenneth Fong, Isis Wong and Lok Kan Chan said: “Suncity is currently allocating approximately 35 percent of their business to Galaxy based on our estimate. As it [Suncity] will open three VIP rooms (Wynn Palace, Parisian and Studio City) over the next few weeks, Galaxy’s share may be diluted.”