Macau casino operator MGM China Holdings Ltd saw fourth-quarter revenue increase 10.5 percent year-on-year to HKD4.28 billion (US$547.4 million), the firm said in a statement to the Hong Kong Stock Exchange. The results released on Tuesday were filed under international financial reporting standards (IFRS), the system used by MGM China as a Hong Kong-listed company.
Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for the October to December period rose by 9.2 percent to HKD1.29 billion, compared to nearly HKD1.19 billion a year earlier.
MGM China’s aggregate revenue for full-year 2017 was approximately HKD15.36 billion, a 3.0-percent increase from the previous year. MGM China’s adjusted EBITDA was nearly HKD4.59 billion last year, compared to about HKD4.50 billion in 2016.
MGM China opened its second property in Macau, MGM Cotai (pictured), last week. In the fourth quarter, 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 International – the parent of MGM China – said the full room inventory of MGM Cotai should be available by spring.
Once fully completed, the property will offer about 1,400 rooms. It opened with approximately 900 units available, according to the MGM Resorts management team.
Mr Murren said on Tuesday’s conference call: “We have many catalysts to drive further traffic and profitability to Cotai this year, including launching our first resident show ‘Destiny’ which will drive even more mass customers and a lot of buzz around the property, but also of course when we open up our Mansion along with five junket operators to support the VIP business.”
The Mansion is a branding term used by the MGM group to describe some luxury accommodation within its properties in several markets.
During the conference call, MGM China’s CEO Grant Bowie said the firm was experiencing a “very strong” take-up at MGM Cotai.
“I am very pleased with the feel, the pace and the rhythm that we’re getting into the property,” he stated. “There’s some really, really good first indicators.”
Mr Bowie noted that the property had already been able “to get the mass win per unit per day on the gaming tables pretty close to the same numbers that we’ve got in [MGM] Macau.”
The executive also said MGM China planned to start offering junket-promoted VIP gaming around June or July.
On the conference call, Mr Murren said the MGM group had not approached the Macau government on the eventual refreshment of its existing gaming concession. The concessions of the six current Macau operators expire on various dates in either 2020 or 2022, with the respective licences of SJM Holdings Ltd and MGM China set to expire in 2020.
“We have not had discussions about the concession renewal with the government. We have taken the view that if we continue to deliver on what we expect is the expectations from operators like ourselves, then we will be treated fairly,” Mr Murren said.
He added: “I think that sometime later this year or next year there will be a discussion around the concession renewal process or as the government says, the rebid of concession. But they have not reached out to us to discuss that and we have not reached out to them.”
Last week, Ambrose So Shu Fai, chief executive of SJM Holdings, said the Macau casino industry would like “clarity” from the authorities regarding the eventual refreshment of the existing gaming concessions.
Macau performance up
A filing from U.S.-based parent MGM Resorts on Tuesday stated that key fourth-quarter numbers for MGM China under U.S. generally accepted accounting principles (U.S. GAAP) and measured in U.S. dollars included operating income of US$43 million, compared to US$72 million in the prior-year quarter.
According to the parent company, MGM China’s operating margin for the period was 7.8 percent, and adjusted EBITDA margin was 26.9 percent, compared to 27.5 percent for the prior-year quarter.
In MGM China’s fourth-quarter results lodged with the Hong Kong Stock Exchange, the firm said main floor table game win increased 22.0 percent year-on-year, to HKD2.30 billion. Table drop in mass-market operations reached HKD10.93 billion in the three months to December 31, up 10.5 percent from a year earlier. Table games win percentage stood at 21.0 percent, compared to 19.0 percent in the fourth quarter of 2016.
Table games turnover in VIP operations was HKD76.80 billion, up 22.6 percent in year-on-year terms, but table games win in the segment increased by only 1.8 percent to HKD2.39 billion. MGM Macau recorded an average VIP table games win percentage of 3.11 percent, down from 3.75 percent in the prior-year quarter, according to Tuesday’s filing.
Slot machine handle rose 14.9 percent year-on-year, to HKD8.70 billion, compared to HKD7.57 billion in the prior-year period.
The fourth-quarter results for MGM China followed a rebound seen in the Macau market. Casino gross gaming revenue (GGR) in Macau’s VIP segment rose 21.9 percent year-on-year in the three months to December 31, according to data released in January by the local regulator, the Gaming Inspection and Coordination Bureau. Mass-market GGR including slots rose 17.1 percent year-on-year during the period.
“MGM China delivered better than expected fourth quarter 2017 results beating both our estimates and [analyst] consensus,” said brokerage Sanford C. Bernstein Ltd analysts Vitaly Umansky, Zhen Gong and Cathy Huang in a Wednesday memo.
They added: “We remain concerned about the company’s ability to fully defend its position on the [Macau] peninsula after the Cotai opening and we are sceptical of a strong Cotai ramp up… We remain cautious due to the potential cannibalisation of peninsula property, MGM China’s lack of experience in Cotai operation that will lead to similar slow ramp encountered by peers.”
Investment bank Morgan Stanley said in a note on Wednesday that MGM China was its “top pick for 2018”. Analysts Praveen Choudhary, Jeremy An and Thomas Allen stated: “We expect MGM Cotai to drive the highest EBITDA growth for MGM China among peers of 40 percent in 2018.”
MGM China board recommended on Tuesday a final dividend for 2017 of US$47 million to MGM China shareholders subject to approval at the MGM China 2018 annual shareholders meeting to be held in May.
MGM China’s parent recorded net revenues of US$2.60 billion for the three months ended December 31, up 4.3 percent from the prior-year period. Group-wide casino revenue increased 11.9 percent year-on-year, to US$1.53 billion.
MGM Resorts recorded net income of US$1.4 billion, including a non-recurring, non-cash income tax benefit of US$1.4 billion due to U.S. tax reform, compared to US$25 million in the prior year quarter. Full year net income stood at US$2.0 billion, compared to US$1.1 billion in 2016.
The parent approved a 9.1-percent increase in the company’s quarterly dividend from US$0.11 per share to US$0.12 per share, totalling US$68 million. The dividend will be paid on March 15 to holders of record on March 9.
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Vitaly Umansky, Kelsey Zhu and Tianjiao Yu
Analysts at brokerage Sanford C. Bernstein