MGM China estimates lowered after delay announcement

Thursday 5th of October 2017

Morgan Stanley analysts have revised down its estimates for MGM China after the company announced the delay of its new Cotai property, as well as higher capex.

Last Friday, MGM China said it is no longer targeting a fourth quarter opening of MGM Cotai after assessing damage caused by Typhoon Hato which struck in August.

After evaluating the damage, MGM says it expects to open the new resort on January 29, 2018.

The company has also reassessed its project costs, and says it now expects the overall budget of the project to increase from HK$26 billion to approximately HK$27 billion (US$3.3 billion), excluding land and capitalized interest.

The brokerage said as a result, it has cut its 2017-19 EBITDA estimates for the operator by about 2-4 percent.

It also noted that the company may potentially report weak 17Q3 results, mainly due to a loss in premium mass market shar.

Morgan Stanley now expects Cotai EBITDA of US$192 million in 2018 and $369 million in 2019, as opposed to previous estimates of $233 million and $395 million respectively.

The analysts have also increased Cotai capex from HK$25 billion to HK$27 billion.

“Some of the downside could be compensated by better VIP business,” noted the brokerage, adding that they expect MGM Cotai to start junket VIP business in the second quarter of 2018.

“We expect the existing MGM facility to add a new junket before Cotai opening,” it added.

Morgan Stanley says it retains its OW rating.

Bricks & Mortar Delay EBITDA Forecast Estimate