Financial services firm Morgan Stanley believes MGM China will enjoy the strongest EBITDA growth of any of Macau’s six gaming concessionaires in 2018, driven by a stronger than expected performance at its new MGM Cotai IR, due to open on 29 January.
In a Wednesday note, Morgan Stanley analysts outlined their reasons for holding a bullish view on MGM China which they say will likely follow the lead of Wynn’s 82% year-on-year EBITDA growth within the first 12 months of Wynn Palace’s launch. Moreover, they point to a number of key advantages MGM Cotai holds over Wynn Palace including better location and a smaller base.
“We estimate [MGM] could see >80% EBITDA growth between 2017 and 2019, implying 35% CAGR over 2017-19 – much stronger than peers of 11%,” said analysts Praveen Choudhary, Alex Poon and Thomas Allen.
“We are confident in this growth rate because … MGM China has the smallest base compared to peers, with only 582 hotel rooms and 427 gaming tables; Wynn Macau 3Q17 property EBITDA grew 82% year-on-year after the opening of Wynn Palace in August 2016 … MGM Cotai will have the same junkets as Wynn Palace does, and MGM Cotai’s location is better than Wynn Palace with less obstruction from Light Rail construction and it’s closer to City of Dreams.”
Morgan Stanley added that expectations of a small 3% market share gain for MGM China following its Cotai launch seems undervalued given Wynn Palace contributed a 4% to 5% gain for Wynn in its first year.
“Our MGM Cotai EBITDA estimate of US$421mn in 2019 is 15% above consensus. We see higher upside to MGM’s dividend (up 5x) and thus stock re-rating to 5-6% FCFE yield by 2019-20,” it said.
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