Key points of investment

2Q24 achieved a total gross profit of HK$8.79 billion, recovering to 137.4% in the same period in '19. VIP/midfielders (including slots) achieved revenue of HK$0.88/7.91 billion respectively, recovering to 39.0%/190.8% in the same period in 2019. The market share led the industry by about 0.5 pct/79.5 pct in 1Q24, respectively. The market share declined from 17.0% in 1Q24 to 16.0% month-on-month, mainly driven by a 4.0 pct decline in VIP business market share.

2Q24 Revenue & profit continued to recover, and profit margins remained high. On the revenue side, 2Q24 achieved total revenue of HK$7.96 billion, which recovered to 143.8% in 2Q19, which is basically in line with market expectations of HK$7.94 billion. Among them, net gaming revenue of HK$6.97 billion recovered to 140.5% in 2Q19; net non-gaming revenue of HK$1 billion recovered to 169.0% in 2Q19. On the profit side, 2Q24 achieved adjusted property EBITDA of HK$2.44 billion, recovering to 167.6% in the same period in '19, which was 6.6% higher than market expectations, driving the company's adjusted EBITDA rate of 2.2 pct from 26.3% in 2Q19 to 30.7% in 2Q24, and an increase of 0.4 pct from month to month. We judge that it was mainly due to better control of daily operating expenses. We estimate that it only increased 1% month-on-month. Looking ahead to 24 years, we maintain the judgment that “the company's adjusted property EBITDA profit margin will remain high at 27-30%”.

The company continues to upgrade properties in the three areas of “food, lodging, and travel”. In terms of food, the company plans to add more catering services to the gaming area. In terms of accommodation, the company is upgrading MGM Macau, adding villas and suites. In terms of experience, the company will collaborate with famous director Zhang Yimou to create a new “MGM 2049” live show. At the same time, MGM Macau will also build a world-class museum, which aims to provide customers with a deeper cultural connotation and rich property experience. We believe that the company's unique entertainment program is expected to drive the long-term development of the company's non-gaming business.

Management continues to be optimistic about MGM's Macau business. Management believes that although the overall recovery of the Macau gaming market has reached only 80%, which is still a long way from the 2019 level, MGM's recovery level has significantly exceeded the market average, and the Macau EBITDAR profit margin has reached 29%, reflecting the company's obvious advantages in cost control and on-site operation efficiency. Therefore, management is confident in the industry and believes that by continuing to invest in properties and enrich the customer experience, it is possible to further increase market share.

Profit forecast and investment rating: We adjusted the company's 2024-2026 net revenue forecast to HK$34.18/36.86/38.46 billion, and raised the company's 2024-2026 adjusted property EBITDA forecast to HK$10.29/11.29/11.91 billion. The current stock price corresponds to 6.3/5.8/5.5 times EV/adjusted property EBITDA. We raised our target price to HK$19.2 to maintain our “buy” rating.

Risk warning: China's macroeconomic growth falls short of expectations, Macau's tourism recovery falls short of expectations, the overseas gaming market is being diverted, and Macau's gaming regulations are getting stricter.