EUR 850.00 For Business Accounts Only

Morningstar | 02282 Updated Forecasts and Estimates from 03 Apr 2019

Narrow-moat MGM China is undervalued with an unchanged fair value estimate of HKD 20 per share. MGM China’s adjusted EBITDA margin improved to 26.3% from 23.5% in the third quarter as MGM Cotai ramped up faster. Adjusted EBTIDA was up 26% sequentially and 9% year over year. In the quarter, MGM China gained shares in VIP and mass segment, both year over year and sequentially. MGM China’s overall VIP revenue was up 18% year over year (up 3% for the market), up 19% sequentially (5% for the market), while mass revenue increased 31% year over year (17% for the market) and 13% sequentially (9% for the market). Management indicated Chinese New Year performance, especially in the upper end market, was solid at MGM China. Our view is that we will see more weakness heading into the year, some junkets indicated that volume has been choppy. Management commented traffic growth bought by the Hong Kong Zhuhai Macau Bridge hasn’t converted into gaming revenue growth, but the gamblers are staying longer. We think the governments will have to resolve the operational challenges of the bridge (eg. long queue at the borders) and ramp up the utilization of the bridge before seeing material impact on gaming revenue.

MGM Macau adjusted EBITDA margin was 30.4%, up from 29% in the third quarter, as contribution of lower-margin VIP segment reduced 80 basis points sequentially. Some VIP tables were shifted to MGM Cotai during the quarter, leading to a 20% year-over-year drop and 6% sequential decline in turnover. However, table efficiency gained in the quarter as VIP turnover per table per day was up 25% year over year and 6% sequentially to 46%. Mass drop per table per day was up 12% both year over year and sequentially.

The new property MGM Cotai ramped up faster in the quarter with adjusted EBITDA margin growing to 20.6% in the fourth quarter from 9.6% in the third quarter, thanks to opening of junket VIP rooms. MGM Cotai’s VIP turnover was up 200% sequentially as the number of tables expanded to 46 from 16. Average mass win per table per day was HKD 83,000 in the quarter, a large improvement from HKD 69,300 in the third quarter, which we believe was mainly helped by spillover from higher VIP turnover and to a smaller extent by higher hold rate.

We will update our model as MGM China publishes its full results.