MGM China Earnings: Moving Beyond Recovery, but Limited Room Supply May Slow Growth Outlook

MGM China’s 02282 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.

We have raised our 2023 revenue forecast for MGM China by 65% to HKD 21 billion and our adjusted EBITDA outlook by 51% to HKD 5.4 billion, after lifting our industry GGR estimate to MOP 181 billion, or 62% of 2019′s level (up from 50% previously). We’re maintaining our longer-term GGR and profit forecasts. Accordingly, we have raised our fair value estimate for MGM China to HKD 9.80 per share from HKD 8.80. We still think the shares are overvalued, as limited room supply may slow earnings growth and lead to a gradual fall in market share eventually.

MGM China received an additional 200 tables for the new 10-year concession period, implying a 36% increase in its table capacity, while the sector as a whole is seeing an 11% reduction compared with 2019′s level. Despite the favorable table allocation, we think MGM China may not maintain its record-high market share over the midcycle, given the limit on its hotel rooms, which we estimate to make up only 6% of Macao’s hotel room count in 2024, the smallest among casino operators. On the other hand, peers like SJM, Galaxy, and Melco Resorts are adding a significant amount of hotel rooms in the coming two years. We expect MGM China’s market share to fall to 13.5% in 2024.