MGM’s Macao Seeing a Stout Recovery in Sales, While Domestic Revenue Endures at High Levels

No-moat MGM Resorts’ Macao (22% of prepandemic 2019 EBITDAR) sales are set to rebound sharply in 2023 (reaching back above 2019′s level in the second quarter), after the Chinese government removed COVID-19 restrictions on Jan. 8, 2023. And although Macao faces elevated operational risk from government oversight, the company remains positioned for the attractive long-term growth opportunities in the region. Further, MGM’s leading omnichannel presence in the U.S. should aid it in the sports betting and iGaming growth markets. Also, we expect the company to have a Japanese integrated resort in 2030, accounting for an estimated 5% of total EBITDAR that year.

We see solid Macao industry visitation over the next 10 years, as key infrastructure projects that alleviate Macao’s congested traffic (Pac On terminal expansion and Hong Kong Bridge in 2018, light-rail transit at the end of 2019, and reclaimed land in 2020-25) come online, which will expand the region’s constrained carrying capacity and add attractions, thereby driving higher visitation and spending levels. As MGM holds one of only six gaming licenses, it stands to benefit from this growth. Further, MGM Resorts has expanded its room share in Macao to 8% from 3% with its Cotai property, which opened in February 2018. That said, the Macao market is highly regulated, and as a result, the pace and timing of growth are at the discretion of the government.

In the U.S. (78% of prepandemic 2019 EBITDA), MGM’s casinos are positioned to benefit from a multi-billion-dollar sports betting and iGaming markets, generating an estimated low-double-digit percentage of the company’s 2027 sales (based on its 50% ownership of BetMGM). That said, the U.S. doesn’t offer the long-term growth potential or regulatory barriers of Macao; thus, we do not believe the region contributes a moat to MGM. Still, there have been very minimal industry supply additions this decade, and this should support solid industry Strip occupancy, which stood at around 90% in prepandemic 2019.

MGM was awarded an urban gaming license in Japan, with a resort opening in 2030, generating attractive returns on invested capital in the low teens.