Wynn Resorts: All eyes on reopening and gaming license (NASDAQ:WYNN)

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My investment review for Wynn Resorts, Limited’s (NASDAQ:WYNN) stock is a Hold. I compared Wynn Resorts and its colleague MGM Resorts International (MGM) in my January 25, 2022 article.

I have downgraded my rating for Wynn Resorts from Buy to Hold with the posting of this latest update on WYNN. While recent developments regarding COVID-19 restrictions and reopening for Zhuhai and Hong Kong are encouraging, there is uncertainty over WYNN’s bid to win a new gaming license for the Macau market with the arrival of a new bidder. This explains my decision to rate Wynn Resorts as a Hold rather than a Buy.

WYNN Stock Price Performance

Shares of Wynn Resorts have performed poorly in 2022 so far, but recent price performance over the past month has been good.

WYNN’s 2022 Year-to-Date Stock Price Chart

WYNN's 2022 Year-to-Date Stock Price Chart

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Year-to-date, Wynn Resorts’ stock price has fallen -27.1%, worse than the -21.0% correction of the S&P 500 over the same period. It’s easy to see why WYNN’s stock has underperformed so far this year. Macau’s gross gaming revenue or GGR for the first eight months of 2022 declined -53% year-on-year to MOP $28.9 billion, representing only 15% of Macau’s pre-pandemic GGR. I noted in my previous late January 2022 update for Wynn Resorts that Macau accounted for more than three quarters of the company’s pre-COVID EBITDA for 2019.

Wynn Resorts Stock Price Performance for the Past Month

Wynn Resorts Stock Price Performance for the Past Month

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However, there has been a turning point in the fortunes of Wynn Resorts in the past month. Shares of WYNN are up +4.3% in the past month, while the S&P 500 is down -9.0% over the same period.

For the rest of the article, I’ll discuss the factors that caused WYNN’s stock price to outperform recently and discuss whether it’s sustainable.

Hope for more tourist arrivals during Golden Week Holiday

On September 19, 2022, local media The Macau Post Daily reported that the Chinese city of “Zhuhai has increased the validity of the negative result of the COVID-19 nucleic acid test (or NAT) (a travel requirement for COVID-19 in China) for arrivals from Macau to 48 hours from just 24 hours.” Gaming publication GGR Asia had previously highlighted in an August 1, 2022 article that Zhuhai is “the main land entry point for (Chinese) tourists from the mainland to Macau.”

Prior to the pandemic outbreak in 2019, visitors to mainland China made up about 90% of tourists who came to Macau. Separately, an important holiday for mainland China, National Day or Golden Week, falls between October 1 and October 7, 2022, and this has historically been an important window for mainland Chinese tourists visiting Macau.

As such, the change in NAT requirements for Zhuhai and Macau comes at an important time, just weeks before the Golden Week holiday kicks off. It is reasonable to assume that this new development will help bring more tourists from mainland China to Macau (and higher gross gaming revenues for the Macau gaming sector) during the national holiday next month. So it’s no surprise that Wynn Resorts’ stock price rose +3% on September 20, 2022, a day after the new Zhuhai NAT requirements were announced.

There’s also another positive news that boosted WYNN’s stock price on September 20, 2022, which I’ll discuss in the next section.

Change in quarantine requirements in Hong Kong sends positive signal for Macau

A September 20, 2022 Search alpha news article mentioned that “Hong Kong wants to relax COVID rules such as mandatory hotel quarantine”, and this article also noted that “mainland officials have reportedly given their approval for new COVID rules” for Hong Kong.

As it stands, people from abroad visiting Hong Kong will have to quarantine in hotels for three days and then stay in “home or alternative accommodation” for four days, the so-called “3+4” system. It is expected that Hong Kong will abolish the hotel quarantine and move to a “0+7” system for people entering Hong Kong.

This recent development for Hong Kong is seen as a positive step for the Macau Special Administrative Region.

Mainland China appears to be sticking to its COVID-zero policy. But it seems that the Chinese authorities are willing to make an exception to some extent with the Hong Kong Special Administrative Region, and this raises hopes that the Macao Special Administrative Region could follow in Hong Kong’s footsteps in easing COVID-19 restrictions. As defined by Thomson Reuters (TRI), both Hong Kong and Macau are special administrative regions or “territories under the sovereignty of the People’s Republic of China, but not part of mainland China”, which “have a high degree of autonomy”.

According to a September 21, 2022 Focus Gaming News article that quoted a news story from Macao Daily News“Andy Wu Keng Kuong, Chairman of the Macau Travel Industry Council” was quoted in an interview (following the recent development in Hong Kong) saying that “Macau needs to reduce quarantine days to five or less to attract more tourists.” While nothing official has been announced, it’s understandable that WYNN’s stock price has been driven up by the expectation of similar changes to Macau’s quarantine requirements in the near future.

Nevertheless, there is a significant risk factor for Wynn Resorts that investors should be aware of, and I’ll get to that in the next section.

Macau Gaming License Tender Draws Attention

The biggest downside risk to Wynn Resorts is that Macau’s business and publicly traded subsidiary Wynn Macau, Limited (OTCPK:WYNMF) (OTCPK:WYNMY) [1128:HK] fails to secure a new Macau gaming license.

Bloomberg reported on September 15, 2022 that “a total of seven candidates will compete for Macau’s six casino licenses, with a firm (GMM Ltd.) associated with (Malaysia) Genting Group joining the bid in a surprising move.” Previously it was expected that only the six existing players in the Macau gaming industry, Wynn Macau, Galaxy Entertainment Group Limited (OTCPK:GXYEF) (OTCPK:GXYYY) [27:HK]Sands China Ltd. (OTCPK:SCHYY) (OTCPK:SCHYF) [1928:HK]MGM China (OTCPK:MCHVF) (OTCPK:MCHVY) [2282:HK]SJM Holdings (OTCPK:SJMHF) (OTCPK:SJMHY) [880:HK]and Melco Resorts & Entertainment (MLCO) will participate in the new gaming license tender.

In theory, the incumbents should have an edge over a new bidder in the gambling license tender based on their respective track record. But it has long been a concern that US affiliated casino operators such as Wynn Macau could be penalized in their respective bids to renew their existing gambling licenses due to poor US-China relations. With a new, non-US, Asian company joining the Macau gaming license tender, it increases the likelihood that regulators will challenge the newcomer, GMM Ltd. up for grabs.

Worst-case scenario, if Wynn Macau doesn’t win the new gaming license, Wynn Resorts could potentially lose up to three-quarters of its EBITDA on a normalized basis (linked to 2019 pre-pandemic levels as highlighted earlier in the article). The winners of the new gaming licenses for the Macau market are expected to be announced before the end of this year, when existing gaming licenses for Wynn Macau and other incumbents expire.

Bottom Line

I rate Wynn Resorts as a Hold. The main positive for WYNN is that there is some progress towards China’s reopening, which could benefit Macau’s tourism industry and gaming market. On the other hand, the main risk for Wynn Resorts is that Macau’s main subsidiary will not obtain a new gambling license when the results of the new gambling license tender are announced.

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