2Q24 results were better than our expectations

MGM China announced 2Q24 results: net revenue of HK$7.96 billion (up 37% year over year, down 4% month on month), returning to 144% of 2Q19; adjusted EBITDA of HK$2.443 billion (up 40% year over year, down 2% month over month), returning to 168% of 2Q19 level, exceeding Bloomberg's agreed expectations of HK$2.25 billion and our expectations of HK$2.379 billion.

We attribute MGM China's performance to: 1) MGM Cotai and MGM Macau continued to outperform their peers in total midfield gaming revenue recovery, returning to 260% and 145% of 2Q19 levels, respectively; however, 2) MGM's VIP business performance was normalized compared to 1Q24, and VIP transcoding numbers fell 55% month-on-month.

Development trends

Highlights of the management performance conference call are as follows:

In July 2024, management indicated that MGM China's total gaming revenue market share in Macau, China remained around 10% mid-teens (mid-teens), and the EBITDA profit margin remained around 20% high twenties (high twenties). At the same time, property passenger traffic remained at a similar level compared to previous quarters;

Management pointed out that MGM China's total revenue continued to exceed the same period in 2019 (recovering to 135% in 2Q19), while the overall revenue recovery of the Macau gaming industry in China lags behind the company, recovering only 77% in 2Q19;

In order to ensure that the long-term goal of EBITDA profit margin is between 20% high end and 30% low end range, management maintains strict management of the rebate rebate policy;

If gaming is legalized in Thailand, MGM China plans to invest in Thailand.

Profit forecasting and valuation

As total revenue grew faster than expected, we raised our adjusted EBITDA forecasts for 2024 and 2025 by 3% and 2% to HK$9.405 billion and HK$10.807 billion, respectively. Current stock prices correspond to 6 times 2024 and 5 times 2025 EV/EBITDA. Maintaining an outperforming industry rating and target price of HK$18.80, that is, 9 times 2024 and 7 times 2025 EV/EBITDA, with 65% 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.