U.S.-based casino operator MGM Resorts International is expected to return “increasing amounts” of cash to its shareholders, said Japanese brokerage Nomura in a note on Tuesday. That growth will be supported by a combination of factors, including a higher dividend from its Macau-based MGM China Holdings Ltd and free cash flow inflection, said the Nomura team.
The brokerage’s note followed a conversation with James Murren (pictured), chairman and chief executive of MGM Resorts, at the 2017 Instinet Gaming, Leisure and Lodging Conference, that took place in New York on Tuesday.
The Nomura analysts said that MGM China’s dividend is likely to increase in 2018 following the opening of MGM Cotai this year. The HKD26-billion (US$3.34-billion) MGM Cotai is likely to open in the fourth quarter of 2017, said in April Mr Murren.
According to Nomura, Mr Murren confirmed that MGM Cotai is expected to open “right after” the October Golden Week, a holiday period at the beginning of the month marking China’s National Day.
“Management considers itself ‘lucky’ that [MGM] Cotai is opening when it is, given the recent resurgence of the VIP segment [in Macau],” said Nomura’s memo.
In August last year, Grant Bowie, chief executive of MGM China, suggested MGM Cotai might open with only mass tables.
Casino gross gaming revenue (GGR) in Macau’s VIP segment expanded by 16.8 percent year-on-year in the first quarter of 2017, according to data released in April by the local regulator.
Fitch Ratings Inc said in a memo last week it expects MGM China to generate about US$700 million in earnings before interest, taxation, depreciation and amortisation (EBITDA) in 2018. The figure includes a US$220-million EBITDA contribution from MGM Cotai, said the credit ratings agency.
MGM Resorts now controls a 56-percent stake in MGM China, after increasing its stake in the Macau-based company last year. MGM Resorts acquired an additional 4.95-percent stake in MGM China in 2016, via a deal with Hong Kong businesswoman Pansy Ho Chiu King.
Mr Murren said such deal reflected MGM Resorts’ positive outlook for Macau, according to Nomura’s note. “If the opportunity presented itself, [MGM Resorts] management noted it would like to increase its stake in MGM China beyond its current 56-percent holding,” said the brokerage’s team.
Nomura also noted that Japan is the only “big thing” that MGM Resorts’ management “considers attractive enough to invest large amounts of capital”. The brokerage added: “Outside of Japan, MGM [Resorts] plans to distribute all of its excess free cash flow generation to shareholders.”
MGM Resorts had declared itself a candidate for a Japanese casino gaming licence long before lawmakers in that country passed the casino enabling bill in December.
“MGM expects the opportunity in Japan to be bigger for the winning consortium than Macau given: 1) the limited number of expected integrated resorts (2 to 3 expected initially); and 2) the expected size of the market (estimated to be [about] US$10 billion to US$20 billion),” said Nomura.
“There are very few companies in the world that are viable candidates for winning a concession in Japan, so MGM likes its chances,” added the brokerage.
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"The stronger mass growth [in Macau in the second quarter] should be viewed positively vis- à-vis [the] government’s stated priority”
Japanese brokerage Nomura