MGM China may have missed its 2Q17 financial forecasts due to declining revenues in both the mass and VIP segments, but the long-term outlook remains positive according to Union Gaming analyst Grant Govertsen, who has labelled the company’s MGM Cotai property – due to open in November – a “game changer.”
Despite revenue for the three months to 30 June falling 0.4% year-n-year and 10.4% sequentially to HK$3.49 billion, Govertsen is maintaining a buy rating on MGM China shares amid predictions it will benefit significantly from a clear customer preference for new product.
“Simply put, MGM China needs new hardware in order to compete with a much more discerning customer set that, more than ever, are calling their own shots,” he said. “As a result, we’re seeing VIP customers generally flocking to either the newest product or newly built spaces within existing properties – hence some of MGM’s neighbors’ outperformance on the peninsula.
“With customers dictating to junkets where they want to play (rather than the other way around), we think MGM remains at a disadvantage until the company opens MGM Cotai and brings online its Mansion product.
“This will be a game-changer for the company and will be unique for the market, which, in turn, gives us confidence that MGM will be able to participate in the ongoing VIP and premium mass resurgence upon the opening of Cotai.”
Govertsen added that, “MGM Cotai will give the company the hard product it needs to compete more effectively in these segments and, as such, we would want to own MGM China heading into the opening.
“We have adjusted our forward estimates for the balance of 2017 to account for a tougher operating environment on the peninsula, and have also slightly lowered our 2018 estimates to build in a longer ramp period for Cotai. This results in our new price target of HK$20 (from HK$21).”
