Wynn Macau:Q2 in line

Battling through the storm.

Wynn Macau had a fairly bad Q2 with revenues -36% and Ebitda -44%but this was broadly in line with expectations. Junket and high end massremains tough. Margins declined by 200bps QoQ despite attempts tomanage payroll and other costs. The company has 7,000 workers on itsWynn Palace site and expects to open on March 25. Margins will improveon opening as workers shift across to the new property. We have notchanged our estimates or HK$18 price target. O-PF.

Weak Q2 but no surprise.

Net revenues -36% to US$617m. VIP turnover was down -41% as the junketmarket remains under extreme pressure. VIP hold was normal at 2.92%. Thenumber of VIP tables declined by -6% yoy. Mass drop was -16% but MassWin was -33% due to a low hold of 17% vs. expected average of 20-22%.

Change in transit visas has been positive for “business class” mass market.

Grind mass has been flat while “first class” mass has been tough still – sameas VIP. Slot win was also weak at -22%. Nongaming revenues fell by -22%.

Hotel occupancy was 96.4% vs. 98.4% last year. Management said that retailrevenues have stabilised.

Managing costs but margins down.

Ebitda was -44% YoY, which was broadly in line with expectations. Thisdecline is worse than Sands China Ebitda of -30% due to Wynn’s higherexposure to VIP. Margins declined by 200bps qoq vs. Sands increase of150bps. Wynn has been managing costs such as payroll, advertising and“other”. Annualised payroll savings are around US$20m but savings arechallenging as the company is training staff for the new opening next year.

Management expect margins to improve at Wynn Macau when costs areshifted to Cotai.

Wynn Cotai opening set for March 25.

Wynn has received their full allocation of construction workers and there are7,000 workers on site. March 25 is the targeted opening date. Project costremains at US$4.1m. While the company has applied for 552 tables, wecontinue to expect a much lower number of around 300 and we see scope forWynn to move at least 100 tables across from their existing property.

No change in estimates.

No change in estimates or HK$18 price target (15% upside) or O-PF rating.

We also expect a dividend yield of 3% based on a 70% payout ratio.