MGM: Japanese Resort Approval Paves the Way for a 2029 Opening, Providing a Future Growth Driver

On April 14, 2023, Japan’s government approved the MGM MGM/Orix plan to develop an integrated resort in the city of Osaka. The news comes nearly a year after the Osaka government submitted the bid to the national government. In our view, the resort will be the country’s only urban gaming license, providing a rich opportunity for MGM. In fact, we estimate that the property (40% owned by MGM, 40% by Orix, and 20% by a consortium of 20 companies) will generate around $4 billion in total sales in 2029 (its first year of operation) with EBITDA margins in the 20s around the end of the decade, generating a return on invested capital in the teens. In total, we see the property generating a high-single-digit percentage of company EBITDA by the end of our 10-year forecast. Having a Japan integrated resort already in our prognosis, we don’t envision any material change to our $50 fair value estimate but will reevaluate after MGM’s first-quarter earnings results on May 1. We see shares as slightly undervalued.

We don’t expect the opening of the Japanese property to have a meaningful impact on demand in the Macao gaming region, which benefits from the captive opportunity of 1.4 billion Chinese citizens and an enclave of resorts. Despite the economic profits we expect MGM’s Macao and Japan facilities to capture, we reiterate the company’s no-moat rating, as its primary U.S. exposure (approaching 80% of total EBITDA even after the opening of the Japan resort) generates low return of investment capital, given the lower barriers of entry.