MGM Resorts International’s Japan integrated resort project could add US$31 per share to the company’s value upon opening in 2030, according to latest analysis by J.P. Morgan, reflecting a modest estimate of US$1.5 billion in annualized EBITDA and over US$600 million in free cash flow.
The US$10 billion MGM Osaka could also be worth US$19 per share today on a discounted basis, although the fact that opening is still four years away – beyond many investors’ time horizons – means the stock is unlikely to fully reflect its value anytime soon.
In a note updating MGM’s share price situation in the wake of the recent offer by Barry Diller’s People Inc to acquire the remainder of the company at an offer price of US$48.30 per share, J.P. Morgan’s Daniel Politzer, Samuel Nielsen and Michael Hirsh observed that although the share price has dropped back to US$47 after peaking at US$51 post-offer, Diller’s acquisition offer could still increase – especially if MGM Osaka is ultimately ascribed “meaningful value.” MGM holds a 43.5% interest in the Osaka project.
The investment bank’s calculations are derived from a base case of US$4.1 billion in revenue and EBITDA of US$1.5 billion – lower than the US$2 billion that MGM itself has publicly forecast.
J.P. Morgan’s assumptions include GGR of US$3.9 billion in GGR of which table GGR would comprise over US$2.0 billion at win per unit per day of US$12,000, and slots US$1.9 billion at yield of US$800 per machine per day. It noted that slots play will likely play a more important role in GGR mix given the proliferation of pachinko in Japan, “contrasting with other international Gaming markets such as Macau, where baccarat is the game of choice.”
On the non-gaming side, the analysts forecast total revenues of around US$800 million, reflecting US$320 million from its 2,500 hotel rooms plus combined F&B, retail, entertainment and other revenue of US$480 million.
A 30% tax rate results in the US$1.5 billion EBITDA prediction, implying a 37% margin and mid-teens return on the US$10 billion total property investment.
According to J.P. Morgan, the “closest comparison [to MGM Osaka] for a high-profile, global integrated resort is Marina Bay Sands” in Singapore, and the property will benefit from a deep domestic catchment plus strong connectivity via Shinkansen rail and three airports handling over 51 million passengers annually.
“While Japan’s demo/macro profile remain a structural concern, we view these as well understood and more than offset by inbound tourism momentum, policy support and Osaka’s regional scale, particularly for what will likely be Japan’s sole integrated resort at opening,” the analysts said.
Notably, the investment bank’s new target price for MGM Resorts shares of US$53 does not factor in MGM Osaka just yet, with US$27 ascribed for the company’s Las Vegas and regional business, US$11 for its 56% stake in MGM China, US$8 for its 50% stake in BetMGM and a US$7 premium given the recent takeover offer.
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