Wynn Resorts (NASDAQ:WYNN): Macau slowdown, Wynn losing share - JP Morgan

JP Morgan is out with some fairly cautious comments on Macau growth rates. Also, Wynn Macau, owned by Wynn Resorts (NASDAQ:WYNN) seems to be losing market share.

According to their channel check, total gaming revenue for Macau up to Sep 26 comes in at approximately MOP13.1bn. Given that there is no weekend till the end of the month, JPM expects this month gaming revenue should end at ~MOP14.5bn (vs market expectation of MOP15-15.5bn) or down 8% mom. While they believe it is natural for a slower September due to seasonality, they caution that weaker-than-expected revenue numbers may disappoint the market and put some pressure on the Macau names especially after their recent rally.

JPM recalls that the run-rate for the first two weeks of September was MOP15.8bn, the revenue momentum actually saw some slowdown over the past 2 weeks. They believe that some gaming patrons delayed their travel plans ahead of the long golden week holiday in October.

- By market share up to Sep 26: SJM: 31.1% (Aug: 29.8%), Sands China 19.8% (Aug: 19.3%), Wynn Macau 10.4% (Aug: 13.9%), Melco Crown 16.8% (Aug: 16.2%), Galaxy 12.7% (Aug: 13.1%) and MGM 9.2% (Aug: 7.6%). According to their channel checks several operators have been more aggressively building up their VIP franchises and this may have possibly led to some market share loss at Wynn Macau. While the firm believes that it is more important to focus on earnings rather than the monthly market share fluctuation, a possible decline in market share could put some pressure on Wynn Macau (1128.HK, OW) near term.

Towards the end of 2010, JPM believes that investors are increasingly focusing on the monthly run-rate over the next few months to gauge the growth momentum for 2011. Street consensus estimates are currently expecting gaming revenue to grow at 15% for 2011. As such, if the monthly revenue over the next few months hits an average of MOP16bn, this would meet market expectation, otherwise, could disappoint.

Notablecalls: We already knew Wynn was losing junket market share due to increased competition. What we didn't know was that the market share loss was 300bps+. Another thing we didn't know what that the Macau revenue in general was tracking below expectations.

To keep it objective I did some digging on the Macau trends and found one interesting comment from UBS Gaming team:

In the normal course of seasonality, one might expect the second half of September to be a little bit softer, due to the pre-national holiday slowdown that we might expect to see in a normal year. But I believe this year is slightly different because we also have the mid-autumn festival holiday, from the 22nd to 24th of September, that runs into the weekend, and then only three or four working days before the national week holiday starts in October. So we’re looking at China in a holiday or quasi-holiday mode for a two or three week period between the third week of September and into the second week of October. We may see continued strength from a bigger, more concentrated holiday season than ever before

So this may help to explain some the weakness JPM checks picked up. Nonetheless I would not be surprised to see further weakness in WYNN shares in the n-t.

As I have noted it's a cult stock so adjust your risk accordingly.