Union Gaming maintains Buy ratings for MGM, SJM

Monday 4th of May 2015

Union Gaming says it maintains its Buy ratings for both MGM and SJM following the company’s first quarter 2015 financial results.

MGM’s total revenue less promotional allowances edged down to $2.33 billion from $2.63 billion a year earlier, missing analysts' mean estimate of $2.40 billion.

But Union Gaming says it is reiterating its Buy rating and $26 price target on the shares of MGM largely due to certain factors that will drive margins in Las Vegas.

“We view 1Q15 as a difficult comparison in Las Vegas which is not indicative of the future outlook. Instead, we look to the ongoing positive trends in booking volumes, expected RevPAR growth and many catalysts ahead, including the August opening of more convention space at Mandalay Bay, the mid-2016 opening of the AEG arena and the pending room refresh at Mandalay to name a few.”

“We believe all of these factors, coupled with improving domestic economic indicators and visitation to Las Vegas will drive meaningful margin improvement and EBITDA gains at MGM’s core properties,” Union Gaming analysts said.

Similarly, in a separate note, Union Gaming said SJM, whose gaming revenue in Q1 decreased by 37.3, gave an indication that it is seeing some “signs of life” relating to mass and premium mass.

“As has been the case with the current round of management conference calls, the tone of the SJM call was not overly positive with management pointing to a lack of visibility on current trends.”

“However, and inline with some of the peer group, the company did indicate that they are seeing some signs of life as it relates to mass and premium mass.”

Union says it maintains its Buy rating on shares of SJM and is concurrently lowering its price target to HKD13.

“We believe Macau's GGR story has reached a period of stabilization and we continue to believe that the GGR story...will see an improvement at some point in 2H15.”