GGRAsia – MGM China operating profit down almost 60pct in 3Q

MGM China operating profit down almost 60pct in 3Q

Nov 09, 2017 Newsdesk Latest News, Macau, Top of the deck

Hong Kong-listed MGM China Holdings Ltd recorded operating profit of US$35 million for the third quarter of 2017, in accordance with U.S. Generally Accepted Accounting Principles (GAAP), the firm’s parent company announced on Wednesday. That represented a decrease of 58.3 percent from a year earlier, according to data disclosed by U.S.-based MGM Resorts International.

Between July and September, MGM China’s net revenue declined by 6 percent in year-on-year terms, to US$471 million. The firm achieved adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$118 million, a decline of 21 percent compared to US$150 million achieved in the prior-year quarter.

Main floor table games revenue at MGM Macau decreased 11 percent compared to the prior-year quarter, MGM China stated in a separate Wednesday filing. That was due to a 3-percent decrease in table drop to HKD10.09 billion (US$1.29 billion) and a decrease in hold percentage to 18.4 percent in the current year quarter from 20.1 percent in the prior-year quarter.

VIP table games revenue went down by 3 percent compared to the prior year quarter. The decline was caused by a 6-percent decrease in turnover to HKD64.42 billion, partially offset by an increase in hold percentage to 3.3 percent in the third quarter from 3.0 percent in the prior year period.

MGM China said its under-construction new resort on Cotai (pictured in a file photo) remained on target to open on January 29, 2018. That is more than one year later than outlined in the original timetable presented by the company.

Sanford C. Bernstein Ltd said MGM China’s third quarter overall results “were in-line with estimates”. It added that MGM China in likelihood “slightly gained quarter-on-quarter market share in VIP (on high comparative hold) with VIP gross gaming revenue up 9 percent quarter-on-quarter (rolling volume was down however 4 percent quarter-on-quarter)”.

Analysts Vitaly Umansky, Zhen Gong and Cathy Huang wrote in a note on Thursday. “We remain concerned about the company’s ability to fully defend its position on the [Macau] peninsula over the next few quarters. While the expansion to Cotai (with [MGM Cotai’s] 1,400 rooms and increased gaming capacity) will give the company an advantage in the mass segment once the property ramps up, we remain cautious due to peninsula headwinds and ‘slow ramp up’ risk.”

More VIP at MGM Macau

The post-results announcement conference call by MGM Resorts – which featured MGM China chief executive Grant Bowie – included limited discussion about the Macau operations.

Mr Bowie stated that MGM China planned to expand its VIP presence at MGM Macau in early December with the addition of a new mid-tier junket room at the casino-hotel.

Mr Bowie said MGM Cotai would initially open offering only “in-house VIP” gaming. He added: “As we’ve indicated earlier, we wouldn’t have junket initially, but we do have a programme to bring that online as quickly as we can.”

Following the results announcement by MGM China, investment bank Morgan Stanley stated the casino operator continued to be its top stock pick in Macau for 2018. Analysts Praveen Choudhary, Alex Poon and Thomas Allen said there was an “over 20 percent” potential upside for stock price, “as we expect MGM Cotai to drive the highest EBITDA growth for MGM China among peers of 33 percent in 2018.”

The Morgan Stanley team said it expected MGM Cotai EBITDA of US$192 million in 2018 and US$419 million in 2019. MGM Macau EBITDA in 2018 should remain “flattish”.

During the conference call, MGM Resorts’ chairman James Murren again talked up the firm’s prospects of winning a Japan casino licence, but no specific new information was given on potential progress in that market. “We’re very active in the pursuit of what I believe to be a tremendous opportunity in Japan and we aim to be a winner in that market as it unfolds,” he said.

MGM Resorts also reported on Wednesday its third-quarter results. The company posted a year-on-year net income decline of 72 percent to US$149.1 million; results in the previous-year quarter had benefitted from a US$430 million gain related to a deal for the firm to buy the 50 percent of Atlantic City’s Borgata Hotel Casino and Spa that the group did not already own.

This was MGM Resorts’ first quarterly financial report since a deadly mass shooting perpetrated from a room at its Mandalay Bay property in Las Vegas, Nevada, in the United States in early October. MGM Resorts stated it expected the event to have a “low- to mid-single digit percentage” negative impact in revenue at its Las Vegas Strip properties in the fourth quarter results, but added that hotel bookings were almost back to normal, after dropping following the incident.