Near-term concerns for MGM China, long-term outlook positive: MS

MGM China is expected to report the weakest EBITDA amongst its peers in 18Q2, due to a slower ramp-up of its Cotai property, absence of VIP business, and the cannibalization of Peninsula casinos, say analysts from Morgan Stanley.

“We expect MGM to report 2Q property EBITDA of US$142m (-13 percent QoQ), weakest among peers. While this seems to be reflected in recent stock underperformance, the earnings revision could continue to remain negative in the near term, capping performance.”

The brokerage has cut its 2018/19 EBITDA estimates by 12 percent and 17 percent, respectively, which is now situated around 9 and 4 percent lower than consensus.

However, Morgan Stanley reiterates that it remains positive on MGM China’s long-term growth prospects.

“We also believe that from 18Q4, MGM could see an improvement in VIP and premium mass business. With SJM’s opening delayed, we expect MGM could continue to ramp well in 2019 with limited competition and 25 additional gaming tables.”

Morgan Stanley expects MGM Cotai to generate US$400 million of EBITDA in 2019.