MGM China Holdings Ltd is likely to see during 2018 the highest growth in earnings before interest, taxation, depreciation and amortisation (EBITDA) among Macau’s six casino licensees and might also outperform the market in that regard during 2019.
So said banking group Morgan Stanley in a Tuesday note, arguing that the catalyst would be MGM Cotai (pictured), a new casino resort due to open in the city on January 29, shortly before Chinese New Year, and which will complement MGM China’s current single property.
“Short interest on MGM China is high (18 percent of free float) as the market is anticipating near-term market share loss, slow ramp of Cotai, weaker VIP business and cannibalisation,” said the bank’s analysts Praveen Choudhary, Alex Poon and Thomas Allen.
But they asserted that property launches “historically drove stock outperformance versus peers”.
They also stated that market rival Wynn Macau Ltd’s EBITDA grew 82 percent year-on-year in the third quarter 2017, a year after opening its Wynn Palace project on Cotai in August 2016. “We expect MGM [China] to follow the same path,” said the analysts.
MGM China could see more than “80-percent EBITDA growth between 2017 and 2019, implying 35 percent compound annual growth over 2017 to 2019, much stronger than peers, of 11 percent,” wrote the Morgan Stanley team.
It added the bank was “confident” regarding such an estimate, asserting “MGM Cotai will have the same junkets as Wynn Palace does, and MGM Cotai’s location is better than Wynn Palace with less obstruction from light rail construction…”
In October, Grant Bowie, chief executive of MGM China, said MGM Cotai was set to open only with mass gaming tables, but that VIP gaming would be offered at a later stage.
In comments to reporters on November 14, on the sidelines of the MGS Entertainment Show 2017 – a casino industry trade exhibition and conference held in Macau – Pansy Ho Chiu King, co-chairperson of MGM China, declined to reveal the number of new-to-market gaming tables the firm would apply for with the city’s casino regulator, the Gaming Inspection and Coordination Bureau. According to MGM China, the Cotai property has capacity for up to 500 tables.
MGM China’s interim report for the period to June 30, published in September, said the firm’s existing property on Macau peninsula had 147 VIP tables and 271 main floor tables, and 1,025 slot machines as of that date, as well as 582 hotel rooms.
MGM Cotai will offer approximately 1,400 hotel rooms and suites, the company has said previously. The expected total development cost for MGM Cotai is approximately HK$26 billion (US$3.3 billion), excluding land costs and capitalised interest, MGM China said in its interim report.
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"We believe the better-than-expected November gross gaming revenue number [in Macau] positions MGM [China Holdings Ltd] especially well for a strong opening in Cotai”
Japanese brokerage Nomura