MGM to lose market share in China, but businesses likely to revive in long term

-0.06%
Downside
47.21
Market
47.18
Trefis
MGM: MGM Resorts logo
MGM
MGM Resorts

MGM Resorts International (NYSE: MGM) reported its Q2’16 earnings on August 2nd and the results came in below analyst estimates. We expect the company’s revenue to continue to decline in the near term due to the delayed opening of its new casino on Cotai strip and sluggish casino conditions in Las Vegas. However, its hotel business in U.S., which constitutes about 20% of its total revenues, is still expected to grow due to better performance of Las Vegas market as compared to the overall U.S. market owing to better regulations and government support to gaming industry. Our stance on MGM’s long term growth remains intact due to its various ongoing projects in U.S. and China.

 

MGM to lose market share in China due to delay in its Cotai Project

Relevant Articles
  1. A Strong Vegas Business And Recovery In Macau Will Drive MGM’s Q2 Results
  2. What’s Happening With MGM Resorts Stock?
  3. Up 16% Over The Past Month, What’s Next For MGM Stock?
  4. With A Strong Vegas Business And A Possible Recovery In Macau, What’s Next For MGM Stock?
  5. What’s Next For MGM Resorts After A Strong Q2?
  6. What’s Happening With MGM Resorts Stock?

The Macau Casino industry started declining after mid 2014, following corruption crackdown by the Chinese government. Since then, the region’s Gross Gaming Revenue (GGR) has dropped by a massive 65%. The decline continued in 2016 and Macau GGR further fell by more than 8% in Q2’16. As a result, VIP gaming revenues declined significantly in the region. MGM’s competitors LVS and WYNN have countered this by opening new casinos targeted at premium mass market gaming and strategically arranging table positions in casinos. As a result, both WYNN and LVS witnessed some growth in their gaming volumes in Q2’16. On the other hand, MGM China’s net sales declined both sequentially and year on year in Q2’16. We believe that MGM will see a decline in its Macau operations in the next few quarters due to a delay in its new casino, which is now expected to open in the second quarter of 2017.

 

Hotels in Las Vegas may come to MGM’s rescue

U.S. hotels and casinos, which contributed more than 45% to MGM’s total revenues in 2015, grew in Q2’16 despite the  Mayweather-Pacquiao fight and Rock in Rio concerts. We believe that the company’s hotel business is likely to grow in th enear term due to the continued growth of the Las Vegas market, which has performed better than the overall U.S. market in last few quarters due to increased number of tourists. MGM saw RevPAR growth of 3.1% in Q2’16 and expects about 7% RevPAR growth in the third quarter, which is an encouraging sign for the company.

Long term growth remains intact due to various ongoing projects

MGM’s acquisition of the remaining interests in the Borgata hotels and spa, which enjoys about 30% market share in Atlantic city GGR, for $900 million in August 2016 strengthens its position in U.S. northeast. Also, the company is expected to open MGM National Harbor in late 2016 and MGM Springfield in 2018, which will ensure its long term in the U.S. MGM has many other ongoing projects including The Park Theatre and MGM Cotai.

We are currently reviewing our valuation model for MGM in light of recent earnings, and will have an update ready soon.

 

For more information, please refer to our complete analysis for MGM Resorts International

See More at Trefis | View Interactive Institutional Research (Powered by Trefis)

Get Trefis Technology