MGM China adjusted EBITDA loss shrinks sequentially in 3Q

MGM China adjusted EBITDA loss shrinks sequentially in 3Q

Macau casino operator MGM China Holdings Ltd reported a smaller loss in adjusted property earnings before interest, taxation, and depreciation (EBITDA) in the third quarter as compared to the April to June period, thanks to a slight revenue rebound led by a twofold rise in mass-market bets.

The Hong Kong-listed company said its third-quarter adjusted property EBITDA were negative by HKD730.6 million (US$94.3 million), smaller than the adjusted EBITDA loss of HKD885.7 million posted in the previous quarter. The latest result was nonetheless a sharp dip from the positive EBITDA of HKD1.5 billion that MGM China reported in the third quarter of 2019.

Carlo Santarelli and Steven Pizzella of Deutsche Bank Securities Inc, nonetheless noted in a Friday memo, that third-quarter Macau operations had presented a “challenge” for investors, with EBITDAR – i.e., EBITDA including rent and restructuring costs – being “US$16.0 million below our forecast”.

MGM China’s numbers in its Hong Kong filing were given under international financial reporting standards. MGM Resorts International, MGM China’s 56-percent parent as of the date of the filing, uses United States generally-accepted accounting principles (U.S. GAAP).

In commentary on trading in October – outside the reporting period – the MGM group’s management had mentioned a trend of positive EBITDA.

Andrew Lee, an analyst at Jefferies Group LLC, said in a Friday note: “The focus remains anecdotal information on the pace of Macau recovery with management noting their properties were EBITDA positive for the ‘past few weeks’ but they expect only a gradual recovery led by premium mass.”

DS Kim, Derek Choi and Jeremy An, analysts at JP Morgan Securities (Asia Pacific) Ltd said in a Friday memo: “Without providing gross gaming revenue figures, MGM [China] said volumes across all segments have improved steadily from the second week of October… led by premium mass – essentially echoing what its peers were saying.”

MGM Resorts said third-quarter net revenues at MGM China fell 94 percent year-on-year, to US$47 million – about HKD364 million – from US$738 million. In a press released the company blamed the “severe impact” of the Covid-19 pandemic for “low visitation levels primarily driven by various travel restrictions and quarantine measures”.

Mass, VIP performance

In the third quarter MGM China posted US$143 million main-floor table game drop, up from just US$66 million in the previous quarter, according to the parent. A year earlier MGM China had posted nearly US$8.65 billion in mass-market table game drop.

Hubert Wang, president and chief operating officer of MGM China, stated in the press release issued by the local unit, that he expected the rate of recovery to “continue to be gradual, driven by the premium mass market”.

Starting from August 26 as part of travel-easing measures following the initial impact of Covid-19, eligible residents from the neighbouring mainland province of Guangdong have been allowed to apply for an exit visa for tourist trips to Macau, either as part of a tour group or under China’s Individual Visit Scheme programme. The measure was extended to residents from other mainland regions from September 23.

Volume in MGM China’s VIP table game segment improved sequentially in the third quarter, with the firm posting a quarterly rolling chip volume of US$929 million, more than twice as much as the US$450-million VIP turnover in the second quarter.

However, MGM China said its VIP table games win percentage was 1.9 percent, much lower than what it stated was the normal range of 2.6 percent to 3.3 percent.

The results in Macau and for the parent were “negatively impacted by US$10 million, due to low hold at both MGM China and Las Vegas,” said a Friday memo from brokerage Sanford C. Bernstein Ltd.

MGM China runs two casino resorts in Macau: MGM Macau on the city’s peninsula, and MGM Cotai, in Macau’s Cotai district.

The older property, MGM Macau saw its revenue rise 89 percent sequentially from the second quarter, to just under HKD263.9 million and its negative adjusted EBITDA shrink 29.9 percent to HKD274.2 million.

At the newer MGM Cotai, revenue fell 16.1 percent sequentially to HKD99.4 million. Its negative adjusted EBITDA was HKD456.3 million.

Mr Wang said construction of additional suites at MGM Cotai was “under way” and it was expected the new accommodation would be “launched in 2021”.

Casino operations in Macau were the biggest contributor to the parent group’s overall adjusted property earnings before interest, taxation, depreciation and rent or restructuring (EBITDAR) loss of US$49 million in the third quarter, smaller than the loss of US$492 million in the second quarter.

MGM China said it maintained “a healthy financial position” with total liquidity of HKD10.9 billion, consisting of “cash and cash equivalent and undrawn revolver” as of September 30.

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