20171130-交银国际证券-镇海炼油化工股份-01128.HK-Facing_real_competition_5页_918kb

Wynn Macau (1128 HK) Summary

Core Content

Wynn Macau (1128 HK), a 72% subsidiary of Wynn Resorts, is a key player in the Macau gaming sector. The company has experienced significant growth in recent years, particularly after the opening of Wynn Palace in 2016, which contributed to a doubling of its market share and positioned it as the second-largest VIP operator in Macau. However, the company has faced challenges, including a decline in its winning streak in 3Q17 and concerns over future market share loss due to increased competition.

Main Financial Highlights

• Revenue:
  • 2015: HK$23,052m
  • 2016: HK$26,156m
  • 2017E: HK$42,068m
  • 2018E: HK$44,026m
  • 2019E: HK$43,773m
• YoY Revenue Growth:
  • 2015: -37.2%
  • 2016: +15.6%
  • 2017E: +60.4%
  • 2018E: +2.9%
  • 2019E: -0.6%
• Net Profit:
  • 2015: HK$2,410m
  • 2016: HK$1,436m
  • 2017E: HK$3,663m
  • 2018E: HK$4,230m
  • 2019E: HK$4,167m
• EPS (HK$):
  • 2015: 0.46
  • 2016: 0.28
  • 2017E: 0.71
  • 2018E: 0.81
  • 2019E: 0.80
• P/E (x):
  • 2015: 50.5
  • 2016: 84.9
  • 2017E: 33.3
  • 2018E: 28.8
  • 2019E: 29.2
• P/B (x):
  • 2015: 29.7
  • 2016: 49.7
  • 2017E: 41.8
  • 2018E: 28.3
  • 2019E: 21.4
• Dividend Yield (%):
  • 2015: 2.6
  • 2016: 1.8
  • 2017E: 2.1
  • 2018E: 2.3
  • 2019E: 2.4

Key Financial Performance

• VIP Revenue Contribution: 63% of gaming revenue
• EBITDA Growth:
  • 2017E: +58.5% YoY
  • 2018E: +4.3% YoY
  • 2019E: -2.1% YoY
• Market Share:
  • VIP market share dropped by 2ppts in 3Q17, the first decline since 3Q16
  • Wynn Palace contributed to a 10ppt increase in VIP market share since 3Q16
• Competitive Challenges:
  • Concerns over market share loss due to peers expanding VIP businesses
  • Pressure on mass revenue from the upcoming MGM Cotai

Valuation and Target Price

• Target Price: HK$19.10 (up from HK$15.50)
• EV/EBITDA:
  • 2017E: 18.1x
  • 2018E: 17.0x (below historical average)
  • 2019E: 17.1x
• Current Valuation: 17.0x 2018E EV/EBITDA, which is 1.3 SD above historical average, indicating potential downside risk

Analyst Recommendation

• Maintain Sell: Based on the expectation that the stock's total return will be below the industry average over the next 12 months
• Reasoning:
  • Slower revenue and EBITDA growth in 2018E compared to the sector average
  • Higher debt burden and net gearing ratio (510.2% in 2018E) may limit its ability to compete effectively

Stock Data

• 52-week high: HK$23.40
• 52-week low: HK$11.86
• Market Cap: HK$118,209m
• Issued Shares: 5,196m
• Average Daily Volume: 6.95m
• 1-month change: +13.47%
• YTD change: +84.36%
• 50-day MA: HK$20.80
• 200-day MA: HK$17.63
• 14-day RSI: 71.58

EBITDA and EPS Revisions

Key Concerns

• Debt Burden: Net debt reached HK$30bn in June 2017, with a net gearing ratio of 854.7% in 2017E
• Market Share: Risk of further loss due to competition from Sands and GEG
• Gaming Revenue Growth: Expected to slow in 2018E, with only 6% YoY increase in VIP revenue
• Valuation Risk: Current valuation of 17.0x EV/EBITDA is seen as overvalued compared to historical averages

Analyst Certification and Disclosure

• The authors of the report declare that their views reflect their personal opinions and that no part of their compensation is tied to the report's recommendations
• The report contains no insider information
• Analysts have not traded in the stock covered in the report within 30 days prior to its release
• BOCOM International has investment banking relationships with several companies and may have conflicts of interest due to ownership stakes in related entities

Summary of Key Points

• Wynn Macau has been a major beneficiary of the VIP boom but faces competitive challenges
• The company's market share declined in 3Q17, indicating a shift in the competitive landscape
• Financial performance shows strong growth in 2017E but is expected to moderate in 2018E
• The current valuation is seen as overvalued, leading to a "Sell" recommendation
• The company has a high debt burden and net gearing ratio, which could impact its ability to compete effectively
• The report highlights potential risks to the company's performance and advises investors to seek independent advice