GGRAsia – Cotai boosts MGM China rev, firm eyes more market share

Cotai boosts MGM China rev, firm eyes more market share

Feb 14, 2019 Newsdesk Latest News, Macau, Top of the deck, World

Macau casino operator MGM China Holdings Ltd reported fourth-quarter revenue of HKD5.38 billion (US$685.1 million), up 33.2 percent from the prior-year period, the firm said in a statement to the Hong Kong Stock Exchange. The results released on Thursday were filed under international financial reporting standards (IFRS), the system used by MGM China as a Hong Kong-listed company. MGM Resorts International – the parent of MGM China – released its results on Wednesday, in the United States.

MGM China’s adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for the three months to December 31 rose by 9.1 percent to HKD1.41 billion, compared to nearly HKD1.29 billion a year earlier.

The firm’s aggregate revenue for full-year 2018 was approximately HKD19.20 billion, a 32.6-percent increase from the previous year. MGM China’s adjusted EBITDA was nearly HKD4.84 billion last year, compared to about HKD4.59 billion in 2017.

MGM China opened its second property in Macau, MGM Cotai (pictured), in February last year. In the fourth quarter of 2017, the firm operated a single property, casino hotel MGM Macau on the Macau peninsula.

During a conference call with analysts following the results announcement, James Murren, chairman and chief executive of MGM Resorts, said the Macau unit had been able to gain market share in the fourth quarter of 2018.

“Our focus [in Macau] is in increasing our market share as all the amenities in Cotai become fully available,” said Mr Murren. “We’re pleased that our VIP junket areas are open, the Mansion high-end casino is now operational, and the Mansion [accommodation], which is stunning, will soon be receiving guests,” he added.

The Mansion is a branding term used by the MGM group to describe some luxury accommodation within its properties in several markets.

In MGM China’s fourth-quarter results statement, the firm said MGM Cotai contributed with HKD2.25 billion in revenue for the fourth-quarter results. The Cotai scheme recorded adjusted EBITDA of nearly HKD462.9 million in the three months to December 31.

MGM Macau’s revenue for the period fell 22.5 percent year-on-year, to nearly HKD3.13 billion. Adjusted EBITDA at MGM Macau for the October to December period slipped by 26.7 percent, to approximately HKD949.6 million.

“We are building the momentum at MGM Cotai. We are also very excited about the launch of Mansion villas which aim to provide unique and exclusive experiences for our high-quality customers,” said MGM China’s CEO Grant Bowie in a prepared statement included in a results presentation.

He added: “Our focus is on getting all the elements at MGM Cotai fully open and continue to take market share. We believe MGM Cotai will drive greater product diversification and bring more advanced and innovative forms of entertainment to Macau as it grows as a global tourism destination.”

Japanese brokerage Nomura said in a note in November that it expected MGM China to increase its share in the Macau gaming sector in 2019, due to the ramp up of the Cotai property.

Improving margins

A filing from U.S.-based parent MGM Resorts on Wednesday stated that key fourth-quarter figures for MGM China under U.S. generally accepted accounting principles (U.S. GAAP) and measured in U.S. dollars included operating income of US$62 million, compared to US$45 million in the prior-year quarter.

According to the parent company, MGM China’s operating margin for the period was 9.0 percent, and adjusted EBITDA margin was 24.3 percent, compared to 29.1 percent for the prior-year quarter. MGM Resorts said the decline in adjusted EBITDA margin was due “primarily to the ramp up of operations at MGM Cotai”.

In MGM China’s fourth-quarter results lodged with the Hong Kong Stock Exchange, the firm said main floor table game win increased 31.5 percent year-on-year to nearly HKD3.02 billion, “due to the opening of MGM Cotai”. The Cotai property recorded table game win of nearly HKD1.29 billion.

In aggregate, table drop in MGM China’s mass-market operations reached approximately HKD15.93 billion in the three months to December 31, up 45.7 percent from a year earlier. Table games win percentage stood at 19.0 percent, compared to 21.0 percent in the fourth quarter of 2017.

Table games turnover in VIP operations was approximately HKD85.98 billion, up 12.0 percent in year-on-year terms, and table games win in the segment increased by 18.4 percent to HKD2.83 billion. MGM Macau recorded an average VIP table games win percentage of 2.87 percent, down from 3.11 percent in the prior-year quarter, according to Thursday’s filing. The Cotai property reported a VIP table games win percentage of 4.37 percent for the three months to December 31.

During the conference call with analysts, MGM China’s Mr Bowie said the firm would now be more focused on cost management as it was now “stabilising the Cotai operation”.

“We are in that phase of locking everything down… I am very positive in terms of how we are building up momentum. We are starting to see stabilisation and business opportunities re-emerging in Macau,” said the MGM China CEO. “We are confident that we can improve margin, we still look at mid, upper twenties in terms of margin performance.”

The fourth-quarter results for MGM China came ahead of market consensus, said brokerage Sanford C. Bernstein Ltd analysts Vitaly Umansky, Kelsey Zhu and Eunice Lee in a Thursday memo.

“Total gross gaming revenue (GGR) in the quarter [for MGM China] amounted to HKD6.45 billion, representing 8.4 percent of the market (up from 7.8 percent in the third quarter 2018 and 7.2 percent in the fourth quarter 2017),” said the Sanford Bernstein team. “The bulk of the share gain came from MGM’s VIP business, which was largely helped by high hold,” it added.

On the conference call, Mr Bowie was also asked to comment on the company’s performance during the Chinese New Year holiday period, which this year was from February 4 to February 10.

“It [the week-long holiday period] was solid for us. A lot of traffic in the city, it looks like the [Hong Kong-Zhuhai-Macau] Bridge has driven a lot of traffic, but probably – as we see through our channel checks – that hasn’t converted into gaming revenue,” said the executive. “But we are also seeing indication that play is extending longer, particularly in the upper end of the market,” he added.

Mr Bowie said additionally that despite the strong traffic during the holiday period, he did not expect “significant spikes in GGR”.

MGM China’s parent recorded net revenues of US$3.05 billion for the three months ended December 31, compared with nearly US$2.60 billion in the fourth quarter of 2017. Group-wide casino revenue increased 21.1 percent year-on-year, to US$1.56 billion.

Despite the increase in revenue, MGM Resorts reported a fourth-quarter net loss of approximately US$23.33 million, compared with net profit of US$1.39 billion in the prior-year period. Full year net income stood at approximately US$466.8 million, compared to US$1.95 billion in 2017.

The parent approved a 8.3-percent increase in the company’s quarterly dividend from US$0.12 per share to US$0.13 per share, totalling US$70 million. The dividend will be paid on March 15 to holders of record on March 8.