MGM CHINA(02282.HK)：FOCUSING ON COST EFFICIENCY AND GAINING MARKET SHARE IN PREMIUM MASS-格隆汇

机构：中金公司
研究员：Shengyong GOH/Jiayu WANG/Liwei HOU/Kai QIAN

2Q22 results beats Bloomberg consensus
MGM China announced its 2Q22 results: Revenue totaled HK$1,122mn, down 53% YoY and 46% QoQ; adjusted EBITDA totaled negative HK$382mn (vs. HK$116mn in 2Q21 and HK$46mn in 1Q22), beating Bloomberg consensus of negative HK$538mn. We attribute MGM’s performance to: 1) improved cost efficiency, and 2) increased market share in premium mass segment.
Trends to watch
Takeaways from management’s earnings call include:
Updates on Macau business: 1) operations were affected by limited visitation due to the COVID-19 resurgence, but in the short-term the company will streamline its cost efficiency, and in the long-term, company aims to capture higher market share in premium Mass business; 2) the company will submit tender documents for the gaming concession in Macau SAR before September 14, 2022, with management confident that it will retain the concession due to MGM’s robust global distribution network and non-gaming business.
Updates on Las Vegas gaming recovery: 1) in 2Q22, business in Las Vegas recorded the highest adjusted property EBITDAR at US$825mn, as margins remaining at pre-pandemic levels; 2) management expects benefits from the New Year Holiday, rebound of international visitations and large-scale events held in Las Vegas; 3) international visitations are returning to Las Vegas, with international visits accounting for 3-5% of the total in 2021, and 10-15% of the total in 2019 prior to the pandemic. Management expects international flight capacity to reach over 80% of 2019 summer levels in 2023.
Updates on group level: 1) the company is open to further investments in Macau SAR, in Japan (another key Asian gaming location), in other jurisdictions, and in the digital gaming sector; 2) management gives guidance on BetMGM at US$2bn revenue in 2023; 3) in 2022, company budgets US$750-800mn Capex for the US market and US$45-55mn capex for Macau SAR, having spent US$250mn in 1H22 on room renovations and technology upgrading.
Financials and valuation
We lift our 2022 revenue and adjusted EBITDA forecasts by 3% and 2,388% to HK$8,598mn and HK$229mn, and maintain our 2023 revenue and adjusted EBITDA forecasts unchanged at HK$16,807mn and HK$4,427mn, given superior cost efficiency and better-than-expected recovery rate. The stock is trading at 7.8x 2023 EV/EBITDA. We maintain OUTPERFORM and our TP of HK$6.00, implying 10x 2023 EV/EBITDA, offering 46.3% upside from the current price.
Risks
Resurgence of COVID-19 situation; unfavorable regulatory changes; slower-than-expected MGM Cotai ramp-up; expiry of gaming concessions in 2022