Wynn Resorts Will Use $2B for Macau Project; Concerns Inevitable

Wynn has been operating in Macau for a while but still has expansion plans. At the moment, the company runs about 2/3 of its activities in the region and wants to continue in the same way. Wynn Resorts plans to spend about $2 billion on a new complex, Crystal Pavilion. However, industry experts are not sure about its success.

Future Venue

According to plans, the new casino complex will be situated near Wynn Palace as a must-see location. The construction will kick off in 2021 and will last until 2024. Wynn representation claims that Crystal Pavilion will include “an innovative architectural design with an all-glass structure; two-phased hotel towers with a total of (approximately) 1,300 rooms and suite and one-of-a-kind public entertainment attractions.”

The new venue will feature two hotel towers, space for performance, garden and interactive sculptures. It will also include a mammoth museum and theatre.

Analysts Feedback

According to the JPMorgan analysts, there are some concerns related to the project:

“Target return on investment is 15 to 20 percent, implying incremental EBITDA [earnings before interest, taxation, depreciation and amortization] of U.S. $300 million to U.S. $400 million from phase one. It will mean a 35-percent to 47-percent boost in the trailing 12-month EBITDA at Wynn Palace which seems a bit aggressive for primarily non-gaming expansion.”

Additional concerns are connected to Wynn Resorts simultaneous projects. The company has just kicked off Encore Boston Harbor in Massachusetts and seeks a gaming license in Japan. If Wynn becomes selected for an integrated resort in Japan, the construction will probably start within one to two years.

Namura analysts noted:

“Wynn’s ‘discretionary free cash flow’ target of U.S. $1.68 billion, or U.S. $16 per share, in 2021 is a consolidated number,” adding, “Adjusting for non-controlling interests in Macau, we estimate Wynn’s ‘true’ free cash flow per share target in 2021 is closer to U.S. $11.40 per share.”

Wynn Resorts still has to prove its value and integrity. The Macau concession ends in 2022 and the company will be looking for renewal. A Japanese integrated resort could also be a good fit despite competition. We wait to see what will happen in the near future…

Source:

“Wynn Resorts to spend $2B in Macau, but analysts are concerned“, Erik Gibbs, calvinayre.com, July 12, 2019.