MGM first quarter results ‘below expectations’

First quarter results released by MGM China Holdings Limited have ‘missed’ estimates for the analysts from Sanford C. Bernstein, as MGM announced total revenue for the first quarter of the year equaling HK$3.6 billion – a decrease of 25 per cent from a year ago and a 6 per cent decline from the previous quarter. This comes in 6.5 per cent below the analysts’ estimates which the group attributed to ‘weak VIP and somewhat in-line mass’ as VIP gross gaming revenue slumped 39 per cent and mass gaming revenue dropped 8 per cent for the quarter, year-on-year. The operator’s ‘low hold in Direct VIP and Mass’ market also negatively affected its adjusted EBITDA (earnings before interest, taxation, depreciation and amortization) – which suffered a 23 per cent drop year-on-year to HK$995 million for the quarter. The research firm stated that the low hold negatively impacted EBITDA by around HK$70 million. ‘Underperforming’ compared to market Property EBITDA margin for the quarter grew 100 points to 27.3 per cent year-on-year, with the main floor business accounting for almost 86 per cent of EBITDA in the first quarter. Bernstein analysts show first quarter gross gaming revenue – at HK$4.39 billion, a 28 per cent decrease year-on-year – as ‘underperforming compared to the Macau market’ which, despite seeing a 13 per cent decrease year on year, saw a 2 per cent increase from last quarter. The firm demonstrated that the VIP and mass market gross gaming revenue decreases were driven by both lower rolling chip volume; however, MGM China stated that it was encouraged by the trends in the mass space. ‘Macau mass GGR has shown improvement for three consecutive quarters now, and we are seeing signs of stabilisation. Our market share in mass segment has been largely stable and our mass table games theoretical win in the first quarter was the highest we have achieved in the past five quarters. We continue to focus on player acquisition and retention of players, while we also aim at increasing share of wallet,’ the group stated in its quarterly report. Both MGM management and Bernstein considered phone betting to be insignificant, accounting for only 5 per cent of total VIP volume. Near term risk in shift to Cotai The group has also announced its continued plans to open MGM Cotai, with expectations that major works will be completed by the end of the year and the opening will occur in the first quarter of 2017, stating the group’s confidence in providing a ‘unique competitive advantage in the non-gaming entertainment market’. Bernstein sees the projects still under the planned budget of US$1.5 billion but warns if the delay becomes more significant beyond the beginning of the second quarter there may be some cost escalation. ‘Macau’s secular trend with Mass business shifting from the Peninsula to Cotai, especially with no project openings, poses near term risk to MGM especially with the opening of Wynn Cotai, until such time as MGM Cotai is open,’ state the analysts, noting this may lead to short term trading performance. Nevertheless, Bernstein still considers MGM China ‘one of the premier operators in Macau with strong management that is delivering outsized results,’ and advises investors to buy stock ‘on weakness.’