Macau boom helps MGM beat estimates

The acquisition of a controlling interest in MGM China, whose revenue more than doubled, helped parent company MGM Resorts beat expectations with its second quarter results

MGM Resorts International saw its earnings in Macau almost triple in the second quarter of this year, pushing the gaming operator’s results above analyst estimates.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) from MGM’s Macau joint venture rose to HKD 1.3 billion from HKD 488 million a year earlier as sales more than doubled, the company said.
The rise was mostly felt from VIP table games where bet volume soared by 110 percent and the casino won 3.1 percent of all bets, slightly above the standard range. Mass-market bet volume increased 21 percent but slot volume rose 76 percent.
MGM took 51 percent control of the venture, MGM China Holdings, in June when partner Pansy Ho sold part of her stake in a USD 1.5 billion (HKD 11.7 billion) initial public offering in Hong Kong. The operation priced at the higher end of the range sought.
“MGM Macau had another record quarter and the acquisition of a controlling interest in MGM China marks an important step in expanding our global operations and profitability,” MGM chairman and chief executive officer Jim Murren said in a statement.
The casino is opening the first phase of a new VIP lounge next week and the upgrade will be completed before the National Day holiday in October, the head of MGM Macau, Grant Bowie said in a conference call.

‘We are hopeful that we can secure that [Cotai] approval in the near future’

Jim Murren

The company is working with the Macau Government to secure a land grant to build a new casino resort in Cotai. “We are hopeful that we can secure that approval in the near future,” Murren said, adding that it would take about three years to open the project.
“We’ve also looked at other expansion opportunities within the existing MGM property in Macau and throughout the SAR,” he said.
MGM plans to redo its Macau credit facility in the fall, and will seek to also “take another look” at the Las Vegas parent’s credit facility within the next six months, seeking improved terms, the executive added.

Better outlook

The Las Vegas-based parent company reached a net income of USD 3.44 billion (HKD 26.9 billion), or USD 6.22 (HKD 48.6) a share, boosted by a USD 3.5 billion (HKD 27.3 billion) gain from consolidating Macau on its books.
That compares to a loss of USD 883.5 million (HKD 6.9 billion), or USD 2 (HKD 15.6) a share, a year earlier when earnings were hit by write-downs from its Las Vegas mega resort CityCenter, the company said in a statement.
Excluding items such as the Macau-booked gain, the loss was USD 5 cents, smaller than the 13-cent loss average of 23 analyst estimates compiled by Bloomberg.
Revenue rose 17 percent to USD 1.81 billion (HKD 14.1 billion), beating the USD 1.61 billion (HKD 12.6 billion) analysts expected. Second-quarter cash flow, or EBITDA at wholly owned casinos rose 7 percent to USD 331 million (HKD 2.6 billion).
“Overall, it was a decent quarter, with nice year-over-year revpar gains on the [Las Vegas] Strip, but likely not enough to fuel momentum back to the name in current climate,” Sterne Agee analyst David Bain told Reuters.
“We are going to see continued improvement [in Las Vegas] as we move into the back half of this year and into 2012,” Murren predicted in the conference call.
Despite the improved results, MGM fell 8.9 percent to USD 11.54 (HKD 90.1) in New York Stock Exchange composite trading after the earnings announcement. MGM China Holdings dropped 4.1 percent to close at HKD 14.94 yesterday.
Overall, casino operators dropped in Hong Kong trading yesterday amid concerns a slowing global recovery will hurt spending by Chinese tourists.
Gambling in Macau “is a luxury expenditure by mainland Chinese,” Lewis Wan, chief investment officer at Pride Investments Group Ltd. in Hong Kong, told Bloomberg. “When the stock market isn’t performing well, it will definitely affect the amount they’re willing to gamble.”                             

V.Q.