Macau casino operator MGM China Holdings Ltd saw its third-quarter net revenue decrease 6 percent year-on-year to US$499.8 million, compared to US$529.0 million in the prior-year period, when judged by U.S. generally accepted accounting principles (GAAP).
As a Hong Kong-listed firm, MGM China normally reports its earnings under international financial reporting standards (IFRS). But the U.S. GAAP numbers are quoted by MGM China as part of the consolidated earnings of its parent, the Las Vegas-based MGM Resorts International. MGM Resorts in September closed the acquisition of 188.1 million shares in subsidiary MGM China from minority shareholder Pansy Ho Chiu King, increasing its stake to approximately 56 percent.
The parent MGM Resorts reported third-quarter net revenue up 16 percent year-on-year, to US$1.9 billion on a U.S. GAAP basis.
In MGM China’s three months trading ending September 30, operating income, and adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) increased 34 percent and 17 percent year-on-year, respectively, which the firm said was “partially due to its focus on high-quality main-floor business”.
VIP table games win at MGM China decreased 26 percent due to a decrease in turnover of 14 percent compared to the prior year quarter, and hold percentage decreased to 3.0 percent in the third quarter, compared to 3.7 percent in the prior year quarter.
But the firm said main floor gross table games win increased 21 percent compared to the prior-year quarter.
Morgan Stanley Group analysts Praveen Choudhary, Alex Poon and Thomas Allen stated in a note on Monday that MGM China had “gained market share” during the reporting period.
MGM China currently operates only one property in Macau – MGM Macau on the city’s peninsula – but is building a second one – MGM Cotai – in the new casino zone of Cotai. The parent said on its second-quarter earnings call in August that the opening of MGM Cotai had been delayed to the second quarter of 2017.
Morgan Stanley said MGM China had held its own in the Macau market in the third quarter, despite being one of only two firms – among Macau’s six casino operators – not to have a Cotai presence.
Cotai threat minimal
“MGM [China's] EBITDA and mass revenue growth of [respectively] 24 percent quarter-on-quarter and 10 percent quarter-on-quarter are both ahead of market growth of 17 percent quarter-on-quarter and 9 percent quarter-on-quarter despite openings of [Wynn] Palace and Parisian [Macao] during the third quarter 2016,” stated Morgan Stanley’s analysts, referring to the launch on August 22 and September 13 respectively of the new Cotai resorts promoted by Wynn Macau Ltd and that of Sands China Ltd.
“MGM [China] has seen higher visitation of mid-range to high-end premium mass customers recently,” added the Morgan Stanley team.
Grant Bowie, chief executive of MGM China, said during the parent’s third-quarter earnings call that MGM Macau had hardly been affected by the new Cotai openings.
“In terms… specifically on the peninsula, the impact from these openings has almost been non-existent. Historically, there was for the first openings in Cotai, a short-term effect, [lasting] probably six to eight weeks. This occasion, it hasn’t [happened] and I guess it’s worth, again, to remind ourselves that the peninsula is incredibly resilient,” said Mr Bowie.
MGM China’s third-quarter operating income increased 34 percent to US$84 million on a U.S. GAAP basis, compared to operating income of US$63 million in the prior-year quarter.
Adjusted EBITDA on the same basis increased 17 percent to US$150 million, compared to US$128 million in the prior-year quarter, including US$9 million of licence fee expense in the current and prior year quarter.
The firm said its operating margin increased by 499 basis points compared to the prior-year quarter, to 16.9 percent, and adjusted EBITDA margin increased by 575 basis points compared to the prior-year period, to 30 percent, which it said was “as a result of an increase in main floor table games mix and continuous efforts to reduce costs”.
“EBITDA margin rose to approximately 29 percent (adjusted for one-off), from 27 percent in 2015 or 28 percent in first half 2016, thanks to ongoing mix improvement and solid cost control,” said analyst DS Kim of JP Morgan Securities (Asia) Ltd.
In the third quarter the number of slot machines at MGM Macau fell 13 percent year-on-year, to 1,032, from 1,180 in the prior-year period. Slot machine handle – judged on an IFRS basis – fell 6 percent, to approximately HKD7.71 billion (US$994.1 million) compared to approximately HKD8.17 billion in the prior-year period.
In April, MGM Resorts announced that it had completed the necessary transactions to establish a subsidiary, MGM Growth Properties LLC, as a publicly traded real estate investment trust (REIT). MGM China’s venues are not part of the REIT.
On Monday, MGM Resorts said it made rent payments to MGM Growth Properties in the amount of US$154 million during the third quarter. The quarter was highlighted by the acquisition of the real estate assets of the Borgata from MGM Resorts – a deal completed in August and which added US$100 million in annual rental revenue.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley