4Q23 performance better than market expectations

MGM China announced 4Q23 results on February 14: net revenue of HK$7.677 billion (up 462% year on year, up 21% month on month), recovering to 135% in 4Q19; adjusted EBITDA of HK$2.19 billion (turning profit year on year, up 16% month over month), returning to 135% of 4Q19, exceeding Bloomberg's agreed expectations of HK$2,012 billion. 4Q23 Company recorded total revenue of HK$9.54 billion, including total gaming revenue of HK$8.496 billion and non-gaming revenue of HK$1,044 billion.

We attribute MGM China's performance to: 1) strong growth in midfield gaming revenue, reaching 174% of the 4Q19 level; 2) overall sales market share growth (16.1% in 4Q23, compared to 14.5% in 3Q23).

Development trends

Highlights of the management performance conference call are as follows:

In January 2024, MGM China's performance surpassed the level of October 2023, and recorded the highest adjusted EBITDA and market share in history. MGM China's total gaming revenue market share in Macau, China reached 20%;

During the 2024 Spring Festival, the number of visitors to Macau, China reached about 90-95% of the same period during the 2019 Spring Festival;

MGM China's midfield bets, slot machine bets, and VIP transcoding amounts all exceeded the 2019 Spring Festival level (the first four days);

Management expects the average daily fixed operating costs for 1H24 to remain similar to 4Q23.

Profit forecasting and valuation

Considering that the company's growth was better than expected, we maintained the adjusted EBITDA forecast for 2024 and raised the adjusted EBITDA forecast for 2025 by 5% to HK$9.092 billion. The current stock price corresponds to 8 times 2024e EV/adjusted EBITDA. We maintain our outperforming industry rating and target price of HK$16.80, corresponding to 10 times 2024e EV/adjusted EBITDA, with 36% upside compared to the current stock price.

risks

The recovery was slower than expected; increased competition in the industry led to loss of market share.