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Thursday, 8 October 2009
Wynn debut may deal investors dud hand
Investors going all-in on Wynn Macau’s pricey HK$12.6 billion initial share offering could be left holding a busted hand unless the casino operator can beat the recent trend of disappointing trading debuts, analysts said.
Investors going all-in on Wynn Macau’s pricey HK$12.6 billion initial share offering could be left holding a busted hand unless the casino operator can beat the recent trend of disappointing trading debuts, analysts said.
Wynn, which begins trading tomorrow, last week priced its shares at the top of the range in defiance of a trend of waning investor appetite for new offerings because of continued doubts over the sustainability of economic recovery in the region.
“I think Wynn will submarine below the listing price,” said Fulbright Securities general manager Francis Lun Sheung-nim. “The offering is too expensive compared with other Macau shares.”
Nasdaq-listed Wynn Resorts, controlled by Las Vegas casino developer Steve Wynn, has sold a 25 per cent stake in its Macau business to investors at HK$10.08 per share.
The deal valued the Macau unit at HK$50.4 billion, or about 34 times its forecast net profit for this year, according to the company’s listing prospectus. The Hang Seng Index trades at 17 times forecast earnings, Bloomberg data shows.
Wynn Macau is seeking the premium because it is one of the most profitable operators in the world’s largest gaming market.
After months of sagging casino revenues, Macau has returned to positive growth and in August saw record monthly takings of 11.27 billion patacas.
“In general, Macau plays will still be hot for the rest of the year. But with Wynn, the valuation has been very demanding,” said Steven Leung, the director of institutional sales at UOB Kay Hian.
Wynn has sought to emphasise the power of its luxury brand, which is positioned at the top of the market and is reflected by the casino’s performance.
The Wynn Macau had 8.9 per cent of table games in Macau, but captured 15.4 per cent of table revenues during the first six months.
The trend is even more dramatic in slot machines, where Wynn had 9.7 per cent of the slots in town, but 23.9 per cent of the revenues.
Wynn Macau’s second-largest supplier last year - behind its construction contractor and ahead of the local electric company - was Rolex (Hong Kong), accounting for 9.2 per cent of purchases. Wynn buys the luxury watches wholesale and sells them direct through a Rolex-branded outlet at its Macau hotel.
Still, regulatory risks including Beijing’s fluctuating travel policies towards Macau remain. Beijing last month informally relaxed restrictions on individual travellers to Macau, allowing them to visit the city once a month compared with once every two months previously.
At the same time, the government moved to formalise a cap on the commissions that casinos pay their VIP junket operators - the middlemen who bring in high rollers, issue them credit for gambling and collect their debts. Analysts expect the move to improve profitability for casinos in the high-stakes gaming segment.
But some analysts remain cautious. “Maybe this is only a honeymoon period because Macau’s new chief executive takes office in December,” Lun said.
“The casino business in Macau is really dependent on Chinese government policy and that is a risk that you cannot overlook.”
And competition in the city is likely to intensify in the near to medium term as new Cotai mega-resort projects being developed by rivals Las Vegas Sands Corp and Galaxy Entertainment Group restart or expedite construction.
Wynn’s aggressive pricing of the sale appears to have squeezed through a closing door. The market for initial public offerings in the past two weeks has shown signs of cooling after last month’s barrage of new listings priced at or near the top of their ranges.
“Recently, investors got their fingers burned on several IPOs and are turning more cautious,” said KGI Asia chief operating officer Ben Kwong Man-bun.
Local tycoons and a fund have already committed to buy US$250 million worth of Wynn Macau shares. These cornerstone investors include former Sun Hung Kai Properties chairman Walter Kwok Ping-sheung, Sogo department store owner Thomas Lau Luen-hung, Malaysian billionaires Quek Leng Chan and Chua Ma Yu, as well as mainland-focused local fund management company Keywise Capital Management.
But, unless a “greenshoe” share purchase option for underwriters occurs, only HK$38.8 million will stay with the Macau subsidiary, according to the listing prospectus.
The bulk of the proceeds will go to a Cayman Islands firm controlled by the Nasdaq parent company to be used for unspecified purposes, which analysts have speculated will include repaying US-specific debt or paying out a special dividend to shareholders of the Nasdaq firm, in which Steve Wynn holds an 18.1 per cent stake.
“As a consequence, such funds will not be retained by the company to finance its business operations or development,” Wynn Macau’s prospectus said.
2 comments:
Wynn debut may deal investors dud hand
Neil Gough
08 October 2009
Investors going all-in on Wynn Macau’s pricey HK$12.6 billion initial share offering could be left holding a busted hand unless the casino operator can beat the recent trend of disappointing trading debuts, analysts said.
Wynn, which begins trading tomorrow, last week priced its shares at the top of the range in defiance of a trend of waning investor appetite for new offerings because of continued doubts over the sustainability of economic recovery in the region.
“I think Wynn will submarine below the listing price,” said Fulbright Securities general manager Francis Lun Sheung-nim. “The offering is too expensive compared with other Macau shares.”
Nasdaq-listed Wynn Resorts, controlled by Las Vegas casino developer Steve Wynn, has sold a 25 per cent stake in its Macau business to investors at HK$10.08 per share.
The deal valued the Macau unit at HK$50.4 billion, or about 34 times its forecast net profit for this year, according to the company’s listing prospectus. The Hang Seng Index trades at 17 times forecast earnings, Bloomberg data shows.
Wynn Macau is seeking the premium because it is one of the most profitable operators in the world’s largest gaming market.
After months of sagging casino revenues, Macau has returned to positive growth and in August saw record monthly takings of 11.27 billion patacas.
“In general, Macau plays will still be hot for the rest of the year. But with Wynn, the valuation has been very demanding,” said Steven Leung, the director of institutional sales at UOB Kay Hian.
Wynn has sought to emphasise the power of its luxury brand, which is positioned at the top of the market and is reflected by the casino’s performance.
The Wynn Macau had 8.9 per cent of table games in Macau, but captured 15.4 per cent of table revenues during the first six months.
The trend is even more dramatic in slot machines, where Wynn had 9.7 per cent of the slots in town, but 23.9 per cent of the revenues.
Wynn Macau’s second-largest supplier last year - behind its construction contractor and ahead of the local electric company - was Rolex (Hong Kong), accounting for 9.2 per cent of purchases. Wynn buys the luxury watches wholesale and sells them direct through a Rolex-branded outlet at its Macau hotel.
Still, regulatory risks including Beijing’s fluctuating travel policies towards Macau remain. Beijing last month informally relaxed restrictions on individual travellers to Macau, allowing them to visit the city once a month compared with once every two months previously.
At the same time, the government moved to formalise a cap on the commissions that casinos pay their VIP junket operators - the middlemen who bring in high rollers, issue them credit for gambling and collect their debts. Analysts expect the move to improve profitability for casinos in the high-stakes gaming segment.
But some analysts remain cautious. “Maybe this is only a honeymoon period because Macau’s new chief executive takes office in December,” Lun said.
“The casino business in Macau is really dependent on Chinese government policy and that is a risk that you cannot overlook.”
And competition in the city is likely to intensify in the near to medium term as new Cotai mega-resort projects being developed by rivals Las Vegas Sands Corp and Galaxy Entertainment Group restart or expedite construction.
Wynn’s aggressive pricing of the sale appears to have squeezed through a closing door. The market for initial public offerings in the past two weeks has shown signs of cooling after last month’s barrage of new listings priced at or near the top of their ranges.
“Recently, investors got their fingers burned on several IPOs and are turning more cautious,” said KGI Asia chief operating officer Ben Kwong Man-bun.
Local tycoons and a fund have already committed to buy US$250 million worth of Wynn Macau shares. These cornerstone investors include former Sun Hung Kai Properties chairman Walter Kwok Ping-sheung, Sogo department store owner Thomas Lau Luen-hung, Malaysian billionaires Quek Leng Chan and Chua Ma Yu, as well as mainland-focused local fund management company Keywise Capital Management.
But, unless a “greenshoe” share purchase option for underwriters occurs, only HK$38.8 million will stay with the Macau subsidiary, according to the listing prospectus.
The bulk of the proceeds will go to a Cayman Islands firm controlled by the Nasdaq parent company to be used for unspecified purposes, which analysts have speculated will include repaying US-specific debt or paying out a special dividend to shareholders of the Nasdaq firm, in which Steve Wynn holds an 18.1 per cent stake.
“As a consequence, such funds will not be retained by the company to finance its business operations or development,” Wynn Macau’s prospectus said.
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