MGM Cotai (pictured), the new Macau casino property from MGM China Holdings Ltd, is likely to open in the fourth quarter of 2017, said James Murren, the chairman of MGM China’s 56-percent parent MGM Resorts International.
“It is going to open this year in the fourth quarter and probably right around – right after Golden Week, probably. But it’s going to open this year for sure and it’s going to be very spectacular,” said Mr Murren on a conference call with investment analysts to discuss the group’s first-quarter earnings. He was referring in particular to a holiday period at the beginning of October marking China’s National Day. The company had spoken previously about MGM Cotai opening in the second half of 2017.
“Following the opening of Cotai we expect MGM China to enjoy significant upside, given what will be an exceptional uptick in room supply for the company, as well as the largest percentage increase in table supply for any of the ‘Big Six’,” said a Friday note from analyst Grant Govertsen of Union Gaming Securities Asia Ltd, referring to Macau’s six directly-licensed casino operators.
In MGM China’s first-quarter results lodged on Thursday with the Hong Kong Stock Exchange – for the existing Macau property, MGM Macau, in the city’s traditional downtown casino district – the firm reported first-quarter 2017 operating income, under U.S. generally accepted accounting principles (U.S. GAAP), the accounting standard of its parent MGM Resorts International, of nearly HKD568.09 million (US$73.0 million).
Under international financial reporting standards (IFRS), the measure used by MGM China as a Hong Kong-listed company, its operating profit for the first three months of the year was HKD854.79 million.
“Property EBITDA [earnings before interest, taxation, depreciation and amortisation] of HK$1.2 billion (+3 percent quarter-on-quarter) beat our estimate by 5 percent, driven by strong mass revenue (+13 percent quarter-on-quarter) as [MGM China] moved tables from VIP to mass,” said a Thursday note from analysts Praveen Choudhary, Alex Poon and Thomas Allen of the Morgan Stanley banking group.
GAAP vs IFRS
A filing from parent MGM Resorts stated that key first-quarter numbers for MGM China under U.S. GAAP and measured in U.S. dollars included net revenues of US$502 million, a 7 percent increase compared to the prior-year quarter.
“The financial information of MGM China in the earnings release [of parent MGM Resorts] is not directly comparable to the unaudited consolidated financial results of MGM China prepared in accordance with IFRS,” noted Thursday’s Hong Kong filing of MGM China.
Main floor table game revenue increased 17 percent “due to an increase in hold percentage to 22.2 percent in the current year quarter, from 18.0 percent in the prior year quarter,” said the MGM Resorts’ release.
VIP table games revenue decreased 5 percent due to a 16 percent decrease in turnover “partially offset by an increase in hold percentage to 3.4 percent in the current-year quarter, from 3.0 percent in the prior-year quarter,” the document stated.
MGM China’s operating income for the first three months was US$73 million compared to US$47 million in the prior-year quarter.
Adjusted EBITDA increased 25 percent to US$143 million, compared to US$114 million in the prior-year quarter, including US$9 million of licence fee expense in the current year quarter and US$8 million in the prior year quarter.
MGM China’s first-quarter 2017 operating margin was 14.6 percent, and adjusted EBITDA margin was 28.5 percent, an increase of 413 basis points compared to the prior-year quarter.
Slot machine handle, measured in Hong Kong dollars on an IFRS basis, rose 13 percent year-on-year, to HKD7.43 billion, compared to nearly HKD6.61 billion in the prior-year period. The number of slot machines in use by MGM China during the reporting period actually fell 14 percent, to 1,016, compared to 1,183 in the prior-year period.
MGM China’s parent MGM Resorts reported first-quarter diluted earnings per share up 200 percent year-on-year, to US$0.36 from US$0.12 in the prior-year quarter. The parent declared a quarterly dividend of US$0.11 per share.
Quarterly net income attributable to MGM Resorts rose 209 percent, to US$207 million, compared to US$67 million in the prior-year quarter.
At its U.S. domestic properties, MGM Resorts reported adjusted property EBITDA growth of 34 percent percent over the prior-year quarter, to US$648 million, and a 15 percent increase on a ‘same-store’ basis.
“MGM [Resorts] has the most exposure to the Las Vegas Strip (approximately 65 percent 2017 estimated EBITDA) in our universe [of covered gaming stocks] with assets across all market segments,” said a Thursday note from analysts Cameron McKnight and Robert Shore of Wells Fargo Securities LLC.
“We remain positive on MGM Resorts’ Las Vegas operations,” they added.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley