Banking group Morgan Stanley said in a Monday note it was downgrading the stock of Macau casino operator MGM China Holdings Ltd to “equal weight” from “overweight”.
The institution cited factors including “higher royalty payments” to parent MGM Resorts International.
Morgan Stanley stated regarding MGM China earnings before interest, taxation, depreciation and amortisation: “We cut our 2026 and 2027 EBITDA estimates by 7 percent each to incorporate higher royalty payments to parent MGM Resorts.
“The royalty payments are roughly 15 percent of its corporate EBITDA… double what it had been in 2023-2025, and significantly higher than peers.”
A December 23 filing from MGM China said a new branding deal involving its United States-based parent effective from January 1, will double the percentage of MGM China’s adjusted consolidated net monthly revenues it must pay as a licensing fee to use the ‘MGM’ brand. The amount will go from 1.75 percent of such revenues to 3.5 percent.
CBRE Equity Research had said in a December 23 memo that the annual fee payable by MGM China “is capped at US$188 million in full-year 2026, although we estimate the fee payable… will be around US$166 million in full-year 2026.”
Analysts John DeCree and Max Marsh added at the time: “MGM [Resorts] will retain 67 percent of this fee going forward while its partner in Macau, Pansy Ho, will retain the balance. This compares… to the prior 50/50 split.”
Morgan Stanley reiterated in its Monday memo, some data it cited in a December 26 update on the topic, flagging that in Hong Kong-dollar terms it expected MGM China’s 2026 corporate EBITDA to fall by 4.9 percent year-on-year, to HKD8.315 billion (US$1.07 billion).
MGM China runs the MGM Macau and MGM Cotai casino resorts in Macau.
Morgan Stanley had referred in the December 26 note prior to its MGM China downgrade, to some “historical background” on royalty payments by Macau operators.
Mentioning other Hong Kong-listed Macau operators with U.S.-based parents, the institution stated: “Since listing, Wynn Macau [Ltd] has paid 3.0 percent of gross revenue, MGM [China] has paid 1.75 percent of net revenue and Sands [China Ltd] has paid 1.5 percent of net revenue to their respective parent companies.
“We do not see a reason for any company to raise payouts.”
‘Leakage’ concerns
Sands China announced on December 24 a fresh annual-royalty deal with its parent Las Vegas Sands Corp, “at the rate of 1.5 percent of its gross non-gaming and gaming revenue”.
Morgan Stanley used the term “leakage” in its December 26 note, to describe royalty payments to parents, and characterised the phenomenon as potentially of “concern”.
The bank noted: “Wynn [Macau Ltd’s] royalty payment has been the highest in the group since [Hong Kong] listing.”
The institution added: “Pre-Covid, Wynn [Macau Ltd] generated higher profits from its VIP business and higher margins (due to lower VIP junket commission payment) and could have justified a higher royalty, but that trend has ended.”
In its follow-up memo on Monday, Morgan Stanley used an EBITDA comparator for the differently-expressed royalty payments.
Wynn Macau Ltd’s payment to Wynn Resorts Ltd was “roughly 14 percent of its corporate EBITDA,” while Sands China’s payment to Las Vegas Sands was “roughly 5 percent of its EBITDA”.
The bank further observed that “since fourth quarter 2024”, U.S.-listed Melco Resorts & Entertainment Ltd “started paying branding fees to its parent,” Hong Kong-listed Melco International Development Ltd, “of roughly 0.8 percent of its revenue and 2 percent of EBITDA”.
The financial institution added that the other two of Macau’s six operators – Hong Kong listees Galaxy Entertainment Group Ltd and SJM Holdings Ltd – had “0 percent” of royalty payments.
