August has seen Wynn Resorts, Ltd., shares getting lower by 20%. One analyst, however, sees Wynn Resorts being undervalued despite Asia-Pacific region geopolitical headwinds weighing on the stock.
The 20% loss on the shares is by definition a bear market for Wynn stock with many of the investors ditching the shares. The stock shares loss comes at a time when the company posted better Macau results in the second-quarter earnings released earlier this month than what was originally expected.
The quarter from April through June saw Macau contribute about 70% of Wynn’s revenue. Despite the company’s VIP business slippage in the quarter, Wynn Resorts made up for softness among the VIP gamblers with more muscle in the mass market.
Dan Wasiolek, a Morningstar analyst, noted recently that Macau core mass gaming sales climbed up the ladder in the quarter with over 22% which signified a 13% growth from the last quarter results. He continued to note that the company had continued to take share. Speaking on the premium mass, he continued, ‘…the premium mass remained choppy (unquantified), which we think is due to ongoing geopolitical events (Hong Kong protests and China-US trade war) and the current ramp-up of MGM’s Cotai property.’
Long-running protests increased on Monday making Hong Kong International Airport flights coming in and out to halt. The canceled flights stopped the passengers from boarding planes taking them to their destinations including those that were destined for Macau. The protests have been ongoing for more than 2 months with the root of the problem stemming from Beijing trying to extradite criminals to mainland China from Hong Kong which would potentially see them receive harsher punishments due to the complex criminal justice system in the region.
Dan Wasiolek does not view the competitive pressure stemming from MGM Cotai or the geopolitical unrest being permanent themes that affect Wynn in Macau. It is understood that the company is looking for ways to solidify its Peninsula presence and one such way is having a plan that will see an addition of 1,300 guestrooms near Wynn Palace.
Speaking on the expansion moves, Wasiolek expects that the premium mass business will shoot up next year once the renovations on the hotel and casino are completed at the property. ‘Overall, we are encouraged that total two-year stacked mass volume (core and premium play) grew 25% and 71% at Wynn Macau and Wynn Palace, respectively, an acceleration from the respective 16% and 65% lift posted in the prior three months.’ He continued
2022 license renewal
Chinese policymakers, however, are looking to push for increased economic diversity and reduced dependency on gaming revenue. This will force Wynn Resorts, among other casino companies, to oblige with the license renewal process that is slated in 2022. The move would see reduced gaming activities in Macau and increased non-gaming tourism happening.
Wasiolek hopes that the expected developments in Macau will see more visitations from the added attractions and that the brand will have an improvement being one of the six companies that hold gaming licenses.
As the time of writing this, Wynn shares trade at $110 which is a figure below what Morningstar estimate. Their estimation stands at $164. Wynn’s forward earning trade is about 18x while MGM Resorts trades at 25.19x.