Company Reports

Narrow-moat MGM China posted another record-breaking quarter for both earnings and market share, with adjusted EBITDA of HKD 2.5 billion and market share of 17.0% in gross gaming revenue, or GGR, up from 16.3% a quarter ago. Its performance continued to lead the growth of its Macao peers, owing to a seasonally strong VIP segment performance, but we expect its market share to normalize to 15%-16% in the coming quarters. We retain both our earnings forecasts and fair value estimate of HKD 11.80 per share. We think the shares are fairly valued, as we continue to believe its limited room supply remains a constraint, which will slow the company’s earnings growth and lead to a gradual fall in market share. Sands China remains our top pick for the sector, which we think will be the key beneficiary of further demand recovery in Macao, underpinned by its focus on the mass market, well-positioned properties with the largest room counts in Macao, and a successful track record in nongaming activities.

Following Galaxy’s special interim and final dividend offerings, MGM China and Wynn Macau have followed suit and both declared final dividends on March 21. We view this as a positive surprise, which came in at least one year earlier than our expectations, suggesting that management groups are confident in Macao’s gaming demand recovery. We maintain our assumption that industry gross gaming revenue will rise to 85% of 2019’s level in 2024, up from 63% in 2023. With that, we believe Macao casinos will record meaningful improvements in profitability and cash flows in 2024. We also expect Sands China to resume its dividend program in 2024, while Melco Resorts and SJM will likely be later in 2025 given the still-stretched balance sheet for both companies.

As one of six casino license holders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2% compared with Las Vegas’ 13%. Excluding neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. New hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from the provinces and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, the new Hengqin border, and the Gongbei-to-Hengqin extension rail, Macao's carrying capacity for tourists should increase. In addition, neighboring Hengqin Island, 3 times the size of Macao, is under rapid development to complement Macao's growth.

As one of six casino license holders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2% compared with Las Vegas’ 13%. Excluding neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. New hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from the provinces and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, the new Hengqin border, and the Gongbei-to-Hengqin extension rail, Macao's carrying capacity for tourists should increase. In addition, neighboring Hengqin Island, 3 times the size of Macao, is under rapid development to complement Macao's growth.

We raise our fair value estimate of narrow-moat MGM China to HKD 11.80 per share from HKD 10.20, following the firm’s strong fourth-quarter results that surprised the market with adjusted EBITDA of HKD 2,190 million, 41% above its 2019 level. Its performance continued to lead growth among its Macao peers, and MGM China estimates it reached a record-high market share of 16.3% in gross gaming revenue, or GGR, in the quarter, up from 14.3% a quarter ago and 9.5% in 2019. We expect MGM China to continue to benefit from the increase in table allocation, successful remodeling and renovation of gaming floors and suite products, as well as utilization of data analytics and efficient marketing strategies—all these will help it to attract more quality customers with higher spending on both gaming and nongaming segments. However, we think the shares are fairly valued as of the market close on Feb. 14, as we believe the limited room supply remains a constraint, which will slow the company’s earnings growth and lead to a gradual fall in market share eventually.

As one of six casino license holders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2% compared with Las Vegas’ 13%. Excluding neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. New hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from the provinces and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, the new Hengqin border, and the Gongbei-to-Hengqin extension rail, Macao's carrying capacity for tourists should increase. In addition, neighboring Hengqin Island, 3 times the size of Macao, is under rapid development to complement Macao's growth.

MGM China delivered solid third-quarter results, with adjusted EBITDA of HKD 1,885 million, 23% above its 2019 level. The performance continued to lead the growth of its Macao peers, and is also slightly ahead of our expectation. We expect MGM China to continue to benefit from the increase in table allocation, successful remodeling and renovation of gaming floors and suite products, and utilization of data analytics and efficient marketing strategies—all these would help it to attract more quality customers. We raise our 2023-25 net revenue forecasts by 10%-12% and adjusted EBITDA by 12%-22%, to reflect a stronger-than-expected growth outlook. Accordingly, we raise our fair value estimate to HKD 10.20 per share from HKD 9.80. However, we think the limited room supply remains a key constraint, which would slow the company’s earnings growth and lead to a gradual fall in market share eventually. Hence, we think the shares are fairly valued currently.

As one of six casino license holders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2% compared with Las Vegas’ 13%. Excluding neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. New hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from the provinces and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, the new Hengqin border, and the Gongbei-to-Hengqin extension rail, Macao's carrying capacity for tourists should increase. In addition, neighboring Hengqin Island, 3 times the size of Macao, is under rapid development to complement Macao's growth.

MGM China’s second-quarter results surprised the market with adjusted EBITDA of USD 209 million, 21% above its 2019 level. The strong second-quarter performance was also ahead of Macao peers; the casino saw a decent market share gain to 14.6% from 9.5% in 2019, with gross gaming revenue returning to 101% of 2019's level, outpacing the 62% recorded by the industry. We expect MGM China to extend its strong growth momentum in the second half, benefiting from a recent increase in table allocation, successful remodeling and renovation of gaming floors and suite products, and efforts to utilize data analytics and efficient marketing strategies. All these should help it to attract more quality customers and boost revenue.

As one of six casino license holders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2% compared with Las Vegas’ 13%. Excluding neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. New hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from the provinces and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, the new Hengqin border, and the Gongbei-to-Hengqin extension rail, Macao's carrying capacity for tourists should increase. In addition, neighboring Hengqin Island, 3 times the size of Macao, is under rapid development to complement Macao's growth.

MGM China’s first-quarter EBITDA of USD 169 million, which represents 88% of 2019's EBITDA in the same period, beat market expectations. The strong first-quarter recovery is also ahead of its Macao peers and the casino sees a record-high market share of 15%, with gross gaming revenue returning to 78% of the 2019 level and outpacing the industry gross gaming revenue, which only achieved 46% of the 2019 number. We expect MGM China to extend its strong growth momentum in coming quarters, benefiting from a recent increase in table allocation, successful remodeling, and renovation of gaming floors and suite products as well as efforts to utilize data analytics and efficient marketing strategies—all these will help it attract more quality customers and boost revenue. We raise our fair value estimate to HKD 8.80 per share from HKD 7.80 after taking into account stronger revenue growth and higher EBITDA margin assumption amid cost efficiencies and mix shift to higher-margin mass gaming and in-house VIP bets. We forecast adjusted EBITDA of HKD 3.6 billion in 2023, up from negative HKD 1.3 billion in 2022.

As one of six casino licenseholders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces, and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

MGM China’s fourth-quarter EBITDA loss was well anticipated by the market, but management’s comments on strong January performance were encouraging: The casino operator saw a record-high market share, with volume of both mass segment and direct VIP well above 2019 levels. In addition, management indicated that postholiday demand has been more resilient than typically seen. We think these positive data points reaffirm our view that a solid recovery of Macao gaming demand is underway. We maintain our assumption of industry gross gaming revenue returning to 50% of 2019's level in 2023, up from 14.4% in 2022. We raise our fair value estimate for MGM China to HKD 7.80 per share from HKD 7.50 after rolling our model one year forward. Our earnings forecast tweaks are minor. We expect adjusted EBITDA of HKD 2.4 billion in 2023, compared with negative HKD 1.3 billion in 2022. The stock price has almost doubled over the past three months, and we think the shares are slightly overvalued as of the Feb. 10 market close.

As one of six casino licenseholders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces, and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

We think the positive comments today from both MGM China and Wynn Macau should lift the Macao gaming sector as a whole. Our initial take on MGM China's fourth-quarter operating loss is that it is not really meaningful with the market looking ahead to the reopening of Macao and given management's positive outlook. No surprise then that MGM China's share price is up more than 5% in morning trading in Hong Kong to HKD 9.75 despite posting a deeper negative EBITDA of HKD 402 million versus Bloomberg consensus of negative HKD 326 million.

We have lowered our Morningstar Uncertainty Rating to High from Very High for the Macao gaming companies under coverage, as the removal of China’s COVID-19 restrictions from Jan. 8 should have removed the major hurdle that has been hindering Macao’s recovery over the past three years. Although it is likely that Macao and China will experience additional COVID-19 waves, which may cause demand to fluctuate, the evidence from other countries shows that the impact on the recovery trend was shorter and less impactful with each wave. We expect the same in Macao, and we have improved visibility around our existing base-case assumption that industry gross gaming revenue, or GGR, will return to 50% of 2019’s level, or MOP 145 million, in 2023, up from 14.4% in 2022. This is slightly higher than the Macao government’s estimate of MOP 130 million, reflecting a more upbeat outlook on the pent-up demand from both mainland China and Hong Kong.

As one of six casino licenseholders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces, and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.

As expected, the Macao government granted the fresh 10-year gaming concession to the six existing casino operators on a provisional basis. We think the announcement will remove many of the remaining concerns on casino licenses. Although detailed terms of the contracts haven’t been disclosed yet, including the investment pledged by each company and nongaming activities each company planned to develop, we don’t expect material risks toward the finalization of the license grants by the end of December, as Macao’s gaming law amendment has concluded, with major changes in line with majority opinions.

In line with Macao peers, MGM China’s third-quarter results continued to reflect COVID-19 headwinds, with a widened adjusted EBITDA loss of HKD 535 million from negative HKD 382 million in the prior quarter. The results contained few surprises, as Macao gaming demand was hit by a two-week shutdown in July, which dampened industry gross gaming revenue, or GGR, to just 7.8% of the 2019 level. Despite the recent COVID-19 cases in Macao and outbreaks in some cities of mainland China, the Chinese authorities reopened e-visa travel to Macao from Nov. 1, which we think is a significant step toward a durable recovery of Macao gaming demand. We retain our long-term constructive outlook for Macao's gaming sector, but slightly tweak our assumptions of industry revenue to 50% of 2019 levels in 2023 from 60% in our earlier forecast, to reflect the challenges resulting from: 1) an extended zero-COVID-19 period, which may continue to disrupt tourism; and 2) slow economic growth that will likely weigh on customer spending and patron betting sizes. As such, we lower our fair value estimate slightly for MGM China to HKD 7.50 per share from HKD 7.80.

As one of six casino licenseholders in Macao, MGM China benefits from insatiable Chinese demand for gaming, underpinned by rising per capita disposable income in China. Macao has a penetration rate of less than 2%, compared with Las Vegas’ 13%. Excluding the neighboring Guangdong province, where only 8% of China’s 1.4 billion population resides, the penetration rate is merely 1%. The new hotel rooms by major operators in the next few years should accommodate increased and extended visits from bigger spenders from these provinces, and drive the top line for integrated resort operators like MGM China. With the gradual ramp-up of traffic allowed on the Hong Kong-Zhuhai-Macao bridge, new Hengqin border and the Gongbei to Hengqin extension rail, Macao's carrying capacity for tourists would increase. In addition, neighboring Hengqin Island, three times the size of Macao, is under rapid development to complement Macao's growth.