MGM China Resurgence Tops Macau Rivals, Says Analyst

MGM China Resurgence Tops Macau Rivals, Says Analyst

Macau’s gross gaming revenue (GGR) is still lower than the peaks achieved before the coronavirus outbreak, yet recent figures suggest a recovery might be taking shape in the special administrative region (SAR) — partly driven by MGM China.

The operator of MGM Cotai and MGM Macau is increasing its market share in the largest casino markets globally while some competitors hesitate in that regard. A recent report by Morningstar analyst Jennifer Song indicates that Pansy Ho’s firm is gaining from the increase in table games capacity.   "MGM China also received an additional 200 gaming tables in the 10-year concession period of 2023-32, representing a 36% increase in its table capacity, compared with a 11% reduction for Macao casinos as a whole,” notes the analyst. “This, along with successful remodeling and renovation of gaming floors and suite products, as well as utilization of data analytics and efficient marketing strategies, help the firm to attract more quality customers and give MGM China a strong market position and profitability.”

With the recent changes to Macau's gaming regulations, concessionaires are restricted in the number of slot machines and table games permitted at each location. Nonetheless, certain operators, like MGM China, are permitted to introduce table games since they were functioning under the new thresholds prior to the implementation of the regulations.

 

MGM China Possesses Financial Robustness

Running casinos is a costly venture, and this is also true for Macau. Operators' costs are actually increased due to the government's insistence on expanding nongaming attractions, resulting in substantial expenses in the upcoming years.

MGM China can fulfill those requirements without putting investors at risk due to its solid financial position. By the end of last year, the company possessed $685 million in available cash and a $1.5 billion revolving credit line, reflecting a strong liquidity situation and showing it is not constrained by the reinstatement of its dividend

“With the firm’s profitability and cash flow surpassing its 2019 levels, MGM China resumed its dividend program from 2023 with a dividend payout ratio of 50% in 2023-24. We expect the firm to maintain a 50% payout ratio in 2025, amid continued improvement in financial strength,” adds Song.

MGM China’s financial stability is significant for investors in MGM Resorts International (NYSE: MGM), as the Las Vegas-based casino giant possesses approximately 56% of the Macau concessionaire. MGM China is the entity through which the parent company will seek to expand in Thailand.

 

MGM China Can Achieve Slight Margin Growth

Based on projected net revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 3% and 2%, respectively, up until 2029, MGM China can slightly enhance margins in the coming years   "We expect adjusted EBITDA margins to average 28% between 2025 and 2029, compared with 27% in 2019, driven by improving operating efficiency and a favorable revenue shift toward the higher-margin mass segment,” observes Song.

The analyst notes that Macau's penetration of 2% is significantly less than Las Vegas' 12%, suggesting there is potential for long-term development in the Chinese gambling center.