UPDATE: Wynn Macau 3rd-Quarter Net Jumps 57%; To Pay HK$0.76 Special Dividend

Wynn Macau Ltd. (1128.HK) reported Wednesday a 57% jump in third-quarter net profit from a year earlier as gambling revenue in the Chinese territory soared, and said it would pay a dividend for the first time.

The casino operator, which listed in Hong Kong in October 2009, said its net profit for the three months ended Sept. 30 was US$114.34 million, up from US$73.05 million a year earlier. Operating revenue rose 50% to US$671.4 million from US$448.5 million.

Wynn Macau's board on Tuesday approved the payment of a special dividend of HK$0.76 per share, and the company said it would consider paying recurring dividends with a target yield of 1%-3% per year. SJM Holdings Ltd. (0880.HK) is the only other Macau operator to have ever paid dividends.

Wynn Macau's adjusted property earnings before interest, taxes, depreciation and amortization, a measure widely used to evaluate the performance of gambling companies, rose 55% to US$198.0 million from US$128.2 million a year earlier.

Morgan Stanley analyst Praveen Choudhary said in a report Wednesday that although the figure was in line with the bank's own expectations, it fell short of the consensus forecast among analysts.

He added the 8% drop in the company's adjusted property Ebitda from the previous quarter underperformed the 9% rise reported by rival operator Sands China Ltd. (1928.HK).

Speaking during Wynn Macau parent company Wynn Resorts Ltd.'s (WYNN) earnings call, Chairman Steve Wynn said Wynn Macau's project in Macau's Cotai area, one of the gambling industry's most lucrative growth centers and the home of Sands' Venetian casino-resort, would cost around US$2.5 billion and open in 2015.

When he first announced the project in April, Wynn said the resort would open as early as the end of 2013.

Analysts have said the company's timeline raises the risk that Wynn Macau could lose market share as rivals such as Galaxy Entertainment Group Ltd. (0027.HK) and Sands China are set open their own projects in Cotai as soon as next year.

Meanwhile, the company's Encore resort, an extension of its property on the Macau peninsula that opened in April, hasn't generated as much revenue for the company as analysts had expected.

Wynn also echoed Las Vegas Sands Corp. (LVS) Chairman Sheldon Adelson's claims on Sands' third-quarter earnings call that some operators in Macau have been paying higher commission rates to junket operators to attract more high-roller business, but that the strategy wouldn't be sustainable.

Junkets, a fixture in the Macau gambling market, bring high-spending gamblers to the casinos, issue them credit and collect on debts in exchange for a commission. As gambling debt isn't recognized in China, there are no legal means for casinos to recover debts owed to them by Chinese gamblers, which account for the majority of their customers.

Both Galaxy and Melco Crown Entertainment Ltd. (MPEL) said after announcing their third-quarter results that they aren't participating in a commission war.

"We found it interesting that management alluded to the competition playing outside of the rules with respect to commissions in Macau given that revenue share arrangements, the easy work around for operators choosing to pay higher than the 1.25% commission cap to their junkets, are technically not illegal," Wells Fargo analyst Carlo Santarelli wrote in a report.

"That said, we agree with management's commentary that those who attract junkets with higher revenue share agreements will be the net losers in Macau," Santarelli said.

Macau's government imposed a 1.25% cap on commissions paid to VIP gambling promoters effective December 2009. However, the cap only applies to rolling turnover and doesn't limit net win sharing arrangements, rendering it largely ineffective, according to Bank of America Merrill Lynch analyst Billy Ng, who said more than 70% of the junket arrangements in Macau are based on the latter system.

Analysts have said Wynn Macau's premier brand name insulated it from the previous commission war that intensified in late 2007.

Wynn also said that while his company and other operators are working to secure the right to run a casino in the highly prized Japan market should the country legalize casino gambling, prospects are "murky at best at the moment," especially given the uncertain political environment there.

Wynn Resorts said Tuesday it swung to a third-quarter loss because of early debt repayment, but excluding one-off charges its earnings per share rose to 39 U.S. cents from 33 U.S. cents, in line with Wall Street's expectations. Its net revenue climbed 30% to US$1.01 billion, boosted by continued strong growth in its Macau operations.

Wynn Resorts declared a cash dividend of US$8 a share, which will cost the company some US$1 billion.

-By Kate O'Keeffe, Dow Jones Newswires; 852-2802-7002; [e-mail]