Macau Should Continue To Drive Growth For MGM Resorts

Despite missing consensus earnings estimates, MGM Resorts (NASDAQ: MGM) delivered a decent Q4, ending the year on a positive note. Revenues for the quarter came in about 17% higher than the year ago period, driven by marked improvement at both gaming and non-gaming facilities across both its domestic and Macau properties. As expected, much of this revenue growth was largely driven by contributions from two new casinos – MGM Springfield and MGM Cotai – as well as growth in both mass market and VIP games in Macau, owing to the opening of MGM Cotai and the addition of VIP junket rooms. As a result, Macau revenue was up nearly 33% year-on-year to just over $687 million, forming about 22% of the company’s net revenues. In addition, MGM’s domestic revenues grew by nearly 10% to slightly under $2.2 billion, largely due to improved visitations, better than expected occupancy rate (up 4% y-o-y) and RevPAR (up 8% y-o-y) – as a result of the opening of MGM Springfield. Further, we expect its newly opened casinos to be the driving force in the near term. Additionally, the remodeled Park MGM casino and NoMad floors, coupled with the recently opened Eataly, should provide for decent near-term opportunities. In addition, the company announced its “MGM 2020” plan, with the focus of improving margins, reducing costs, and driving revenue growth through varied digital ventures, which should help improve the guest experience through data, pricing, digital and loyalty capabilities. Moreover, its acquisition of Empire City in New York should not only help the company tap into the underserved New York market, but also help complement its MGM Springfield casino – driven by cross marketing opportunities. This, coupled with the soon to be acquired Northfield Park in Ohio, should expand its domestic portfolio and provide for decent medium term opportunities. Below we take a look at what to expect from the company in 2019. We have a $35 price estimate for MGM’s stock, which is slightly higher than the current market price. We are in the process of updating our model based on Q4 results. Our interactive dashboard on what to expect from MGM Resorts in 2019 details our expectations for the company’s 2019 earnings. You can modify the charts in the dashboard to gauge the impact that changes in key drivers for MGM would have on the company’s earnings and valuation, and see all of our Consumer company data here.

Macau enjoyed another strong performance in Q4, as a result of solid growth in casino revenue. This was largely due to increased VIP and Mass visitations at the recently opened MGM Cotai. However, owing to the ramp up of MGM Cotai, the operating margins decreased by just under 500 basis points to 24.3%. Despite a slight blip, the 2018 gross gaming revenues (GGR) remained robust (grew by nearly 14% y-o-y). Further, the opening of two VIP junket rooms in MGM Cotai, as well as the opening of the President’s Club – an exclusive gaming arena for premium mass market customers – helped drive Q4 results and should provide for solid growth opportunities. Further, the opening of the Hong Kong-Macau bridge should drive improved mass market visitations in the near term. Additionally, the opening of The Mansion – its high-end casino – right before the Chinese New Year should boost its 2019 outlook. In addition, the proposed opening of three additional VIP junket rooms in MGM Cotai by early 2019 should further drive its 2019 revenues.

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