UPDATE: Wynn Macau 3rd-Quarter Net Jumps 57%; To Pay HK$0.76 Special Dividend
November 03 2010 - 1:27AM
Dow Jones News
Wynn Macau Ltd. (1128.HK) reported Wednesday a 57% jump in
third-quarter net profit from a year earlier as gambling revenue in
the Chinese territory soared, and said it would pay a dividend for
the first time.
The casino operator, which listed in Hong Kong in October 2009,
said its net profit for the three months ended Sept. 30 was
US$114.34 million, up from US$73.05 million a year earlier.
Operating revenue rose 50% to US$671.4 million from US$448.5
million.
Wynn Macau's board on Tuesday approved the payment of a special
dividend of HK$0.76 per share, and the company said it would
consider paying recurring dividends with a target yield of 1%-3%
per year. SJM Holdings Ltd. (0880.HK) is the only other Macau
operator to have ever paid dividends.
Wynn Macau's adjusted property earnings before interest, taxes,
depreciation and amortization, a measure widely used to evaluate
the performance of gambling companies, rose 55% to US$198.0 million
from US$128.2 million a year earlier.
Morgan Stanley analyst Praveen Choudhary said in a report
Wednesday that although the figure was in line with the bank's own
expectations, it fell short of the consensus forecast among
analysts.
He added the 8% drop in the company's adjusted property Ebitda
from the previous quarter underperformed the 9% rise reported by
rival operator Sands China Ltd. (1928.HK).
Speaking during Wynn Macau parent company Wynn Resorts Ltd.'s
(WYNN) earnings call, Chairman Steve Wynn said Wynn Macau's project
in Macau's Cotai area, one of the gambling industry's most
lucrative growth centers and the home of Sands' Venetian
casino-resort, would cost around US$2.5 billion and open in
2015.
When he first announced the project in April, Wynn said the
resort would open as early as the end of 2013.
Analysts have said the company's timeline raises the risk that
Wynn Macau could lose market share as rivals such as Galaxy
Entertainment Group Ltd. (0027.HK) and Sands China are set open
their own projects in Cotai as soon as next year.
Meanwhile, the company's Encore resort, an extension of its
property on the Macau peninsula that opened in April, hasn't
generated as much revenue for the company as analysts had
expected.
Wynn also echoed Las Vegas Sands Corp. (LVS) Chairman Sheldon
Adelson's claims on Sands' third-quarter earnings call that some
operators in Macau have been paying higher commission rates to
junket operators to attract more high-roller business, but that the
strategy wouldn't be sustainable.
Junkets, a fixture in the Macau gambling market, bring
high-spending gamblers to the casinos, issue them credit and
collect on debts in exchange for a commission. As gambling debt
isn't recognized in China, there are no legal means for casinos to
recover debts owed to them by Chinese gamblers, which account for
the majority of their customers.
Both Galaxy and Melco Crown Entertainment Ltd. (MPEL) said after
announcing their third-quarter results that they aren't
participating in a commission war.
"We found it interesting that management alluded to the
competition playing outside of the rules with respect to
commissions in Macau given that revenue share arrangements, the
easy work around for operators choosing to pay higher than the
1.25% commission cap to their junkets, are technically not
illegal," Wells Fargo analyst Carlo Santarelli wrote in a
report.
"That said, we agree with management's commentary that those who
attract junkets with higher revenue share agreements will be the
net losers in Macau," Santarelli said.
Macau's government imposed a 1.25% cap on commissions paid to
VIP gambling promoters effective December 2009. However, the cap
only applies to rolling turnover and doesn't limit net win sharing
arrangements, rendering it largely ineffective, according to Bank
of America Merrill Lynch analyst Billy Ng, who said more than 70%
of the junket arrangements in Macau are based on the latter
system.
Analysts have said Wynn Macau's premier brand name insulated it
from the previous commission war that intensified in late 2007.
Wynn also said that while his company and other operators are
working to secure the right to run a casino in the highly prized
Japan market should the country legalize casino gambling, prospects
are "murky at best at the moment," especially given the uncertain
political environment there.
Wynn Resorts said Tuesday it swung to a third-quarter loss
because of early debt repayment, but excluding one-off charges its
earnings per share rose to 39 U.S. cents from 33 U.S. cents, in
line with Wall Street's expectations. Its net revenue climbed 30%
to US$1.01 billion, boosted by continued strong growth in its Macau
operations.
Wynn Resorts declared a cash dividend of US$8 a share, which
will cost the company some US$1 billion.
-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002;
kathryn.okeeffe@dowjones.com
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