MGM China Sees Solid 2023 Recovery

MGM China’s 02282 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.

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 whole is seeing an 11% reduction of the total number of tables compared with 2019′s level. We believe MGM China’s favorable market positioning in premium mass and the new table grants, coinciding with strong pent-up demand following China’s reopening, drove its gaming market share up sharply to 16% in January 2023, from 10% in 2019. However, we think MGM China is unlikely to maintain this record-high market share over the midcycle, given the limit of its hotel rooms, which we estimate to make up only 7% of Macao’s hotel room count in 2024, the lowest share among casino operators. Peers SJM, Galaxy, and Melco Resorts are adding a significant number of hotel rooms in the coming two years.