EUR 850.00 For Business Accounts Only

Morningstar | MGM China Continues to Be Undervalued for Long-Term Investors

We are maintaining narrow-moat MGM China’s fair value estimate of HKD 21.5 and think shares are undervalued. Our fair value estimate incorporates a downturn and license renewal risks in the form of higher gaming taxes in the next few years. We think total social financing growth will slow down, and export and business confidence will weaken because of the trade war between the United States and China. We believe that will certainly put pressure on MGM China’s earnings in the near term. Nevertheless, we adhere to the long-term structural story of Macau gaming and believe MGM China will gradually see ramp up at MGM Cotai and benefit from the underpenetration and infrastructure improvement story of Macau in the long run. We expect an increase in VIP market share as VIP rooms are gradually added. Premium mass business should also benefit from the improving VIP business, in our view.

MGM China’s adjusted EBITDA was HKD 1.1 billion in the third quarter, an 8% increase sequentially, mainly due to the casino playing lucky, and a 38% year-over-year rise due to the addition of MGM Cotai. Adjusted for the luck impact, adjusted EBITDA would have declined 3% sequentially, partly due to the impact of the recent typhoon. MGM Cotai’s adjusted EBITDA was down 17% sequentially as a result of an unusually weak VIP win rate of 0.81%. MGM Cotai’s VIP volume growth was 136%, helped by two new junkets. The mass segment of the property was up only 2% sequentially in terms of drop, indicating a slow ramp-up. MGM Macau’s adjusted EBITDA was up 18% sequentially, helped by a higher win rate of 3.52% in the third quarter versus 2.26% in the VIP segment. The property’s VIP turnover was down 15% sequentially and mass drop was down 5% sequentially. These appear to be signs of cannibalization.