Financial services firm Morgan Stanley has cut its EBITDA estimates for MGM China by between 2% and 4% after the casino operator announced the opening of its new Macau property, MGM Cotai, would be delayed until 29 January 2018.
In a Friday note, Morgan Stanley analysts Praveen Choudhary, Alex Poon and Thomas Allen revealed revised Cotai EBITDA estimates of US$192 million in 2018, down from US$233 million, and US$369 million for 2019, down from US$395 million. They also revised their price target down by HK$0.40 due to increased Cotai capex from HK$25 billion to HK$27 billion.
MGM China announced last week that it had been forced to delay the opening of MGM Cotai from its scheduled 4Q17 date due to damage caused by Typhoon Hato – the T10 storm that battered Macau on 23 August.
“The company has since evaluated the situation and developed a revised schedule for completing repair works and processing governmental inspections necessary for obtaining relevant licenses to operate MGM Cotai,” it said. “As a result, MGM Cotai will be slightly delayed from our previous expected opening in the fourth quarter of 2017 and is now expected to open on 29 January 2018.”
Morgan Stanley predicted that MGM will likely add a new junket room to its current Peninsula property to help compensate for the delay, with VIP business unlikely to start at MGM Cotai until 2Q18.
However, it nevertheless reiterated its previous overweight rating on MGM China stock “which remains the cheapest on 2019 multiple” and which “the market will start to focus on in the next 12 months (12x EV/EBITDA and 8% FCFE yield).
“Dividend yield should exceed 4% in 2019e and grow sustainably,” Morgan Stanley said. “The stock could also outperform ahead of Cotai opening similar to peers. Cotai will double or triple the size of the company in terms of GFA and number of hotel rooms, and potentially revenue and EBITDA growth in 2018/19, which we think could drive re-rating similar to Wynn Macau.”
