Wynn Macau debut cashes in on Asia gaming fever

HONG KONG Fri Oct 9, 2009 11:16am EDT

1 of 2. Allan Zeman (C), non-executive director of Wynn Macau, speaks during the debut of Wynn Macau at the Hong Kong Stock Exchange October 9, 2009. Wynn Macau's stronger-than-expected debut in Hong Kong on Friday, in which its share price rose 9 percent, signals that the appetite for gambling stocks remains strong despite high valuations, paving the way for a listing by rival Las Vegas Sands later this year.

Credit: Reuters/Bobby Yip

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HONG KONG (Reuters) - Wynn Macau's strong debut in Hong Kong on Friday shows appetite for gambling stocks is strong despite high valuations, and will cheer U.S. casino rival Las Vegas Sands, which plans a listing later this year.

Wynn Macau shares ended 6 percent higher at HK$10.70 versus an IPO price of HK$10.08, defying forecasts of, at best, a flat start due to its relatively high IPO price. The closing price valued the casino giant at $6.9 billion.

"For big-cap IPOs, its performance is pretty good," said Peter Pak, vice president at BOCI Research. "Its pricing is not cheap, but Macau's gaming revenue has been rising and that helped boost confidence."

Wynn Macau's $1.63 billion IPO, the world's sixth-largest this year, could speed up the expected listing for Las Vegas Sands, which plans to raise up to $2 billion in a Hong Kong offering for its Asia assets, most notably in Macau.

Macau, once owned by Portugal and now a special administrative region under Chinese rule, is the world's biggest gambling market and the only place in China where gambling is legal.

Gambling revenues hit a monthly high of $1.4 billion in August, a faster-than-expected recovery compared with Las Vegas, and revenues are expected to have been stronger still in September as China relaxed restrictions on its citizens crossing into Macau from Guangdong province.

"The timing is very opportunistic to do an IPO taking advantage of strength in the Hong Kong stock market and a renaissance, if you will, of the Macau market," said Robert LaFleur, a U.S. gaming analyst with Susquehanna Financial Group, which is a market maker in Wynn shares.

"It establishes some firm valuation benchmarks for Macau operations and that's been very supportive of a fairly significant run in stocks like Las Vegas Sands and Wynn," LaFleur added.

Wynn, which had a 16.4 percent market share of Macau in 2008, is one of a handful of gambling "pure plays" there, with Melco Crown Entertainment, Galaxy Entertainment Group and SJM Holdings.

The listing by the Asia unit of Wynn Resorts marked a major victory for Hong Kong's stock market, netting its first IPO for a big global brand in years.

"Wynn is a known name compared with other recent IPOs that many people have not heard about, so it's probably easier to sell," said Nicholas Yeo, head of China and Hong Kong equities at Aberdeen Asset Management.

"The strong (Wynn) debut will boost the valuations of LVS's IPO," said Antonny Cheng, managing director at Gain Asset Management.

The Wynn Macau offering comes as the global IPO market heats up, encouraged by a rebound in stock markets worldwide. Santander Brasil and Verisk Analytics raised nearly $10 billion between them on Tuesday.

IPO JACKPOT

The strong reception for Wynn, and for Yingde Gases Group and Ausnutria Dairy Corp, among others, on Thursday, could also end a trend of weak performance in recent offerings as sentiment improves, brokers said.

"There are still fund inflows from overseas and from China that are looking for short-term trading opportunities," said Ben Kwong, chief operating officer, KGI Asia.

Asia has led the recovery in IPOs with many large offerings, primarily in Hong Kong and China. But the boom had begun to show signs of waning on concerns of oversupply, rich pricings and an uncertain economic outlook.

Six recent listings opened below their issue prices in Hong Kong, most notably Metallurgical Corp. of China, which fell 13 percent on September 24.

Five traders polled by Reuters had expected Wynn to fall slightly below the IPO price on its debut.

At the Hong Kong stock exchange, a small crowd of bankers and Wynn executives sipped champagne and chatted excitedly on cellphones to congratulate investors and other contacts.

"We want long-term holders, we want investors to stay with us," said Allan Zeman, a director at Wynn Resorts. "And those people who want to flip on opening day ... they are entitled to but they are better off to go to Macau and play in the casinos."

For a related Graphic on top global IPOs, click:

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As an indication of heavy demand, sources said the Wynn IPO was already several times covered, with one saying the institutional portion was more than 10 times over-subscribed.

Ten percent of the deal went to retail buyers.

COSTLY BET ?

Wynn's Macau casino, with its plush carpets and chandeliers, relies mostly on high-rollers to generate income, in contrast with Sands, which aims more at the mass market. Wynn plans another casino in Macau.

But a premier name with exposure to the world's hottest gambling market does not come cheaply.

"The stock is priced to perfection. That means it's quite highly sensitive to negative news flow," said Gary Pinge, an analyst with Macquarie Securities.

"The current strength in the market is unlikely to continue over the longer term as there is always an undercurrent of competitive and political risk."

Wynn Macau trades around 16 times its 2010 enterprise value to EBITDA, versus 7.5 times for gambling tycoon Stanley Ho's flagship SJM, according to Credit Suisse.

JPMorgan, Morgan Stanley and UBS are joint sponsors and global coordinators of the deal, with BofA-Merrill Lynch and Deutsche Bank as joint bookrunners.

Shares of Wynn were off 34 cents to $69.57 in morning U.S. trading on Friday, while Las Vegas Sands fell 14 cents to $18.14.

(Additional reporting by Alison Leung, Fion Li, Stefanie McIntyre, Kennix Chim, Karen Jacobs and Jun Ebias, Editing by Doug Young, Valerie Lee, Dave Zimmerman)

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