MGM Pre Earnings: MGM Likely To Record Strongest Quarter of 2016

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MGM Resorts international (NASDAQ: MGM) will report its Q4’16 earnings on February 16th and we expect high single digit growth in its revenues driven by improvement in Macau gaming industry and the continued strength in the U.S. casino business. MGM’s newly opened casino in Maryland, the MGM National Harbor, will also add to the revenue growth this quarter but the impact on the overall revenues will not be significant as this casino has operated just 22 days in Q4’16. MGM’s EBITDA and margins are expected to increase due to the NV Energy exit plan, which was completed last quarter. This will provide complete energy independence and opportunity for more competitive pricing in the coming quarters. MGM’s revenues will also benefit from the acquisition in Q3’16 of Boyd Gaming Corporation’s interest in the Borgata Hotel Casino and Spa. However, the ATM withdrawal limit imposed by the Macau government in December 2016 likely constrained revenue growth in Q4’16.

 

U.S. Casinos Likely To Steer MGM’s Q4’16 Earnings 

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Las Vegas market was up in Q4’16, and the year to date increase in its GGR was about 4% in November 2016. MGM’s U.S. casinos witnessed nearly 6% revenue growth in the first 9 months of 2016, which helped offset the revenue decline caused by the weakness in Macau. We believe this trend continued in the fourth quarter.

While Las Vegas contributes nearly 60% to MGM’s overall revenues, other U.S. casinos contribute about 14%. MGM opened its new casino ‘MGM National Harbor’ in Maryland this quarter. The $1.4 billion casino includes 3,600 slots and 140 table games and can accommodate up to 4,000 guests. From the first 22 days of operation of MGM National Harbor, we don’t expect a significant contribution to MGM’s overall revenues but this is likely to further strengthen MGM’s domestic presence.

 

Macau growth momentum is a win-win situation for MGM

The revenues from Macau were down this year as the region’s GGR continued to suffer in the wake of government measures. However, the figure started to rally in the second half of 2016 and the overall decline for 2016 was just 3.3% compared to 34.3% in 2015. We expect MGM’s revenues from the region to increase in Q4’16 due to double-digit growth in Macau’s GGR in the fourth quarter of 2016. MGM has worked towards improving its operational efficiency and customer service and has focused on mass market gamblers, which resulted in 15% increase in EBITDA of MGM China in Q3’16. Thus, we believe that, due to increased visitations, MGM China’s EBITDA may surpass its 2015 levels.

The Macau government recently slashed in half the amount of cash which China Union Pay card holders can withdraw from ATM machines in the city. As much as 50% of the Chinese visitors to Macau use Union Pay ATM withdrawals for their gaming requirements and slashing withdrawal limits will create a liquidity crunch in the short term. There are individuals who specialize in utilizing hundreds of ATM cards on any given day to withdraw cash and provide liquidity to junket agents and some Premium Mass players. Therefore, this should not impact base mass and lower end premium mass customers but may partially offset MGM China’s Q4’16 revenue growth due to decline in high-end premium mass revenues.

 

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com

2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis of MGM Resorts International.

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