EUR 850.00 For Business Accounts Only

Morningstar | No-Moat MGM Has Catalysts on the Horizon in Improved Vegas Calendar, Cost-Cutting, and Japan

We think MGM Resorts is positioned to maintain its leading presence in the lower-growth lower-barrier Las Vegas region (49% of estimated 2019 EBITDA) while participating in the attractive long-term growth opportunity of Macau (19% of EBITDA). MGM Resorts has expanded its room share in Macau to 8% from 3% with its Cotai property, which opened in February 2018. The offset to this expanded room presence is the continued long-term shift away from VIP and gaming revenue toward nongaming and mass play in the industry. We expect MGM to be awarded a gaming license in a Japanese urban market with a resort opening in the middle of the next decade.We see solid Macau visitation over the next 10 years, aided by key infrastructure projects that alleviate Macau's congested traffic (Pac On Terminal expansion and Hong Kong Bridge in 2018, the light-rail transit in 2019, and reclaimed land in 2020-25) come on line, which will expand the region's constrained carrying capacity, thereby driving higher visitation and spending levels. Our forecast for annual mid-single-digit visitation growth over the next decade is supported by China outbound travel that we expect will average high-single-digit annual growth over the next 10 years. Additionally, we expect upcoming developments that add attractions and improve Macau's accessibility will improve the destination's brand, supporting our constructive long-term view on Macau. As MGM holds one of only six gaming licenses, it stands to benefit from this growth. That said, the Macau market is highly regulated, and as a result, the pace and timing of growth are at the discretion of the government.In Las Vegas, MGM’s nine casinos account for about one fourth of total Las Vegas Strip rooms. Las Vegas doesn’t offer the long-term growth potential or regulatory barriers of Macau; thus, we do not believe the region contributes a moat to MGM. However, there have been very minimal industry supply additions this decade that should support solid industry Strip occupancy around 90% through 2019.