MGM China (2282 HK) Company Report Summary
Core Content
This report provides an analysis of MGM China's performance for the third quarter of 2017 and its financial outlook for the upcoming years. The report highlights key financial metrics, market performance, and investment ratings, offering insights into the company's position in the Macau gaming industry.
Key Financial Performance
3Q17 Results
- Net Revenue: HK$3,679 million (5% lower YoY, 5% higher QoQ)
- EBITDA: HK$1,049 million (2% lower than estimate, 8% higher than street consensus)
- VIP GGR: Increased by 4% YoY and 9% QoQ due to a better-than-expected VIP win rate of 3.3%
- Mass GGR: Improved by 2% and 14% QoQ, but still weak
- EBITDA Margin: Fell 0.6ppt QoQ to 28.5%
EBITDA Trends
- FY17E/18E EBITDA estimates were fine-tuned down by 1% due to slightly weak mass business
- FY17E/18E EBITDA are 2‰/6% lower than the consensus
Investment Outlook
Target Price
- TP: HK$18.00 (1-SD above 5-year averages of 21x P/E and 18x EV/EBITDA)
- Current Price: HK$18.92 (10% premium to peers due to elevated earnings expectations from MGM Cotai's opening in 1Q18E)
Rating
- Company Rating: NEUTRAL
- Reason: Despite the positive impact of VIP performance, there is uncertainty around the ramp-up of MGM Cotai, which could lead to share price volatility
Key Takeaways from Conference Call
- The Macau market has recovered quickly from typhoon impacts.
- VIP performance remains strong, and MGM will open a new VIP room in the Peninsula property soon.
- MGM Cotai will not initially offer junket services; mansions from Las Vegas will be brought to Cotai before mid-2018E.
- The skylofts are expected to be competitive for high roller business and will help high-end gaming ramp up.
Valuation and Peer Comparison
Valuation Ratios
- P/E (FY17E): 26.6x
- P/E (FY18E): 26.9x
- EV/EBITDA (FY17E): 21.8x
- EV/EBITDA (FY18E): 15.9x
- EV/EBITDA (FY19E): 12.5x
Peer Valuation Table
| Company |
Ticker |
Target Price (HK$) |
Current Price (HK$) |
P/E (FY17E) |
P/E (FY18E) |
P/E (FY19E) |
EV/EBITDA (FY17E) |
EV/EBITDA (FY18E) |
EV/EBITDA (FY19E) |
| Galaxy |
27 HK |
56.10 |
56.10 |
26.5 |
24.7 |
23.0 |
16.4 |
15.2 |
14.1 |
| SJM |
880 HK |
7.40 |
6.56 |
22.1 |
27.5 |
17.8 |
9.3 |
9.7 |
6.8 |
| Wynn Macau |
1128 HK |
22.20 |
21.85 |
33.7 |
40.2 |
37.5 |
17.6 |
15.4 |
14.4 |
| Sands China |
1928 HK |
42.70 |
38.10 |
64.3 |
63.3 |
63.3 |
17.5 |
16.2 |
15.8 |
| MGM China |
2282 HK |
18.00 |
18.94 |
26.6 |
26.9 |
18.5 |
21.8 |
15.9 |
12.5 |
| Melco Resorts |
MLCO US |
30.50 |
25.01 |
19.1 |
15.8 |
10.9 |
11.4 |
9.7 |
8.2 |
Financial Summary
Balance Sheet (HK$ mn)
| Item |
2015 |
2016 |
2017E |
2018E |
2019E |
| Total Assets |
21,955 |
27,080 |
31,756 |
34,798 |
36,743 |
| Total Liabilities |
17,040 |
19,864 |
22,963 |
24,270 |
23,501 |
| Shareholders' Equity |
4,915 |
7,217 |
8,793 |
10,528 |
13,242 |
Income Statement (HK$ mn)
| Item |
2015 |
2016 |
2017E |
2018E |
2019E |
| Total Net Revenue |
17,170 |
14,907 |
14,858 |
22,265 |
25,399 |
| Net Profit |
3,113 |
3,037 |
2,705 |
2,676 |
3,884 |
| EPS (HK$) |
0.82 |
0.80 |
0.71 |
0.70 |
1.02 |
Cash Flow (HK$ mn)
| Item |
2015 |
2016 |
2017E |
2018E |
2019E |
| Net Cash Flow |
1,189 |
-1,874 |
-2,310 |
1,607 |
700 |
Financial Ratios
| Ratio |
2015 |
2016 |
2017E |
2018E |
2019E |
| EBITDA Margin |
24.8% |
27.6% |
27.3% |
24.1% |
26.3% |
| ROE |
63.3% |
42.1% |
30.8% |
25.4% |
29.3% |
| Net Debt/Equity |
187.3% |
126.9% |
84.3% |
- |
- |
| P/E |
23.1x |
23.7x |
26.6x |
26.9x |
18.5x |
| EV/EBITDA |
18.4x |
20.2x |
21.8x |
15.9x |
12.5x |
| Dividend Yield |
1.3% |
1.5% |
1.3% |
1.3% |
1.9% |
Key Risks and Uncertainties
- Delay in MGM Cotai Opening: Could negatively impact earnings growth
- Slower Ramp-Up of MGM Cotai: May lead to share price volatility
Investment Ratings
| Rating |
Definition |
| OVERWEIGHT |
Expect sector to outperform the market over the next 12 months |
| NEUTRAL |
Expect stock to generate +10% to -10% over the next 12 months |
| BUY |
Expect stock to generate 10%+ return over the next 12 months |
Analyst and Regulatory Information
- Analyst Disclosure: The views expressed reflect the personal views of the analysts, and no compensation is linked to specific recommendations
- Regulatory Disclosure: Please refer to the important disclosures on the CMS HK website
- Disclaimer: This document is for information only and not intended as investment advice. Past performance is not indicative of future results. Estimates are based on assumptions that may not be realized. The document is for intended recipients only and cannot be reproduced or distributed without prior consent.
