MGM Resorts Will See Higher Earnings Over Macau Growth And Its U.S. Hotel Operations

April 28th, 2014 by Trefis Team
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MGM Resorts (NYSE:MGM) will report its Q1 2014 earnings on April 29. We expect the company in the quarter benefited from continued strength in Macau gaming, which continued its impressive run into 2014 as visitors flocked to Asia’s gambling hub. More than 770,000 mainland Chinese visitors traveled to Macau during the New Year holidays from January 31 to February 6, reflecting an increase of 23% from a year earlier, according to the Macau Government Tourist Office. [1]

Macau witnessed 20% jump in gross gaming revenues during the first quarter of 2014 as compared to the prior year quarter. [2] We expect MGM to post solid results in Macau for the first quarter. It must be noted that MGM derives majority of its revenues from its U.S. operations. The six months Nevada gaming revenues (ending February) were up 0.96%. [3] However, individually for the months of January and February, they declined by 3% and 14% respectively. [4] [5] Recently, Las Vegas Sands reported its first quarter earnings and it witnessed more than 31% decline in its Las Vegas casino revenues. [6] (Also See – Las Vegas Sands’ Earnings Jump 38% As Cotai Booms) We are eager to see how the U.S. casino figures trended for MGM in the first quarter, though we know the company benefited from its convention mix over ConExpo-Con/Agg show.

MGM has plans for a $800 million gambling and entertainment complex in downtown Springfield, Massachusetts. However, the company recently stated that this state’s law needs revision in order to avoid turning off gamblers and cutting into the state’s take from casino and slot parlor profits. MGM and Wynn Resorts are calling for repeal of a provision requiring casinos to withhold 5% state income tax on certain gambling winnings in excess of $600. [7] We’ll be closely watching for any update on this front. Also, we are eager to learn more details on the company’s recent partnership with the Hakkasan Group to develop non-casino hotels worldwide.

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See our complete analysis for MGM Resorts International

MGM Will Benefit From Macau Gaming Growth

MGM’s Macau revenues jumped 18% to $3.32 billion and EBITDA surged 20% to $814 million in 2013. This was driven by better chip turnover and an increase in main floor table games hold percentage to 34.2%, as compared to 29.9% in the prior year period. [8] Macau operations are meaningful for MGM as they contribute more than 38% to it’s value, according to our estimates. Macau’s casino market continued its strong growth into 2014 and collected more than $12 billion in gaming revenues during the first quarter, up 20% from Q1 2013. [2] While the VIP segment grew by 13%, the mass-market gaming surged 39% as compared to the prior year period. We expect MGM China to benefit from the gaming growth in Macau and post solid set of numbers for the first quarter.

U.S. Operations Will Pick Up Over Convention Mix

MGM’s U.S. operations witnessed steady growth in 2013, which was also a good year for casino industry in Nevada. The state’s casino industry collected $11.14 billion in revenues, up 2.6% from the prior year. [9] This was the state’s best collection since 2008. MGM saw 1.8% growth in overall casino revenues while the table games revenue jumped 5% compared to the prior year period. This can be primarily attributed to an increase in overall table games hold percentage from 19.7% in 2012 to 20.5% in 2013. [8] However, it must be noted that MGM derives majority of its revenues from non-gaming sources. The U.S. hotels alone contribute more than 30% to the company’s value, according to our estimates. We expect MGM to see strong growth in its hotels operations for the first quarter. The company will benefit from its convention mix as ConExpo-Con/Agg show returned to MGM this year. The company had expected its convention mix in the first quarter to be approximately 22%, which is near peak levels for any first quarter prior. [10] This likely led to around 10% growth in REVPAR (revenue per available room) at its hotels. WE will look for confirmation with the release of earnings.

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Notes:
  1. Visitor arrivals hit one million in Spring Festival Golden Week Year-on-year increase of 13%, Macau Government Tourist Office, February 7, 2014 [↩]
  2. MACAU CASINO GAMING REVENUE UP 20% IN Q1 ON MASS MARKET SURGE, Calvin Ayre, Apr 16, 2014 [↩] [↩]
  3. Nevada Gaming Statistics: The Last Six Months, UNLV Center For Gaming Research [↩]
  4. Nevada gambling revenues down 2.7 percent in January, Las Vegas Sun, Feb 28, 2014 [↩]
  5. Vegas Wire: Nevada gambling revenue down 14% for February, Press of Atlantic City, March 2014 [↩]
  6. Las Vegas Sands’ SEC Filings [↩]
  7. Casinos: Mass. income tax rules could turn off gamblers, Providence Journal, Apr 27, 2014 [↩]
  8. MGM Resorts’ SEC Filings [↩] [↩]
  9. Baccarat helps drive Nevada gaming revenue to $11 billion in 2013, Review Journal, Jan 31, 2014 [↩]
  10. MGM Resorts International Management Discusses Q4 2013 Results – Earnings Call Transcript, Seeking Alpha, Feb 19, 2014 [↩]