Macau-based casino operator MGM China Holdings Ltd is likely to increase its share of the city’s gaming sector in 2019, says the Instinet LLC research arm of Japanese brokerage Nomura. That is despite a potential contraction of overall gross gaming revenue (GGR) in Macau next year.
MGM China operates two casino properties in Macau: MGM Macau on the peninsula and MGM Cotai (pictured) in the city’s Cotai district. The latter resort opened its doors on February 13.
“Investors should expect MGM Cotai’s ramp to be gradual through 2020,” analysts Harry Curtis, Daniel Adam and Brian Dobson wrote in a Monday note.
They added: “However, two new junkets opening in the next few weeks and the expected opening of the Mansion [villas] by Chinese New Year (February 5, 2019) should help MGM Resorts International be a share gainer in a declining Macau market next year.”
Their comments were made after a meeting on Sunday with the chief strategy officer of MGM Resorts, Aaron Fischer. MGM Resorts is the parent company of MGM China.
MGM Cotai contributed approximately US$172 million of net revenues for MGM China in the third quarter, with all gaming segments recording sequential growth in volume albeit at lower hold rates, the firm announced in October.
At the time, MGM China said it planned to launch MGM Cotai’s President’s Club – an exclusive premium mass gaming area – in December. The firm’s chief executive, Grant Bowie, also confirmed that the company aimed to have some of the Mansion villas – a high-end accommodation product also at MGM Cotai – ready in time for the upcoming Chinese New Year period, traditionally a peak season for Macau’s casinos.
Junket operations at MGM Cotai officially commenced in September, with the opening of two VIP rooms. Tak Chun Group, a major Macau junket investor, opened a club at MGM Cotai – its 17th in the Macau market – on November 1.
Mr Bowie mentioned to media in August that the casino operator expected to see a total of five junket operators establish VIP rooms at MGM Cotai between September and early 2019.
In a previous note issued last week, Nomura had forecast a scenario in which Macau GGR next year could shrink by 3 percent, with VIP revenue declining 10 percent, mass revenue up by 4 percent and slot revenue increasing 3 percent. The brokerage did its calculations in the light of the slide in shares in Wynn Resorts Ltd after the company gave a gloom-laden outlook for its Macau operations for the fourth quarter of this year.
‘Best positioned’ for Japan
Monday’s Nomura note also discussed MGM Resorts’ aspirations for a casino licence in Japan.
“Given MGM Resorts’ willingness to partner and its successful track record partnering with third parties such as Pansy Ho [Chiu King] in Macau and Dubai World at CityCenter, we believe MGM Resorts is one of the best-positioned, if not the best-positioned global gaming operator” when it came to winning a licence in Japan, the note said.
MGM Resorts’ US$9-billion CityCenter complex, launched on the Las Vegas Strip in December 2009, was developed in partnership with the Dubai World group, a holding company controlled by the government of Dubai. Macau-based casino operator MGM China was initially a 50-50 joint venture with local businesswoman Ms Ho. MGM Resorts now controls the firm, but she remains a significant shareholder.
The Nomura note indirectly quoted comments by Mr Fischer stating however that expectations for return on invested capital for a Japan casino resort should not be much higher than low double digits of percent “when infrastructure spending requirements are included.”
Several major global gaming operators have in recent months reaffirmed their respective interest in developing a casino resort in Japan. A number of industry executives expect the first casino licences to be issued in around the year 2020, with the first resorts to open for operation in circa 2025.
Last week a representative from the Tokyo office of business services firm EY told the a conference panel at the MGS Entertainment Show 2018 in Macau that it could be 2023 before licences are issued, with a four-year construction timetable pushing back the first opening to as late as 2027.
As reported last month by GGRAsia, Japan’s central government body coordinating casino liberalisation policy is contacting 67 major local governments across the nation asking what plans, if any, they are making for bids to host a casino resort. The central government wants by July next year to announce the policy framework under which those local governments can make their respective pitch to the national authorities.
“Within six to 12 months, MGM Resorts should know which cities will have integrated resorts in Japan,” stated the latest note by Nomura. “The front runners are currently Osaka, Yokohama and Tokyo,” it added.
A statute legalising the concept of Japanese casino gaming venues – the IR Promotion Bill – came into effect in December 2016. The second enabling bill – the IR Implementation Bill, approved in July – clarified several key points regarding the country’s nascent industry including: an initial cap of three casino resorts nationwide; a 30 percent tax on casino gross gaming revenue; and an entry levy of JPY6,000 (US$53) for Japanese citizens and residents of Japan wishing to enter such venues.
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Analyst at Roth Capital Partners