MGM China Earnings: Strong Recovery Leads That of Macao Peers; Fair Value Estimate Raised by 16%

We raise our fair value estimate of narrow-moat MGM China to HKD 11.80 per share from HKD 10.20, following the firm’s strong fourth-quarter results that surprised the market with adjusted EBITDA of HKD 2,190 million, 41% above its 2019 level. Its performance continued to lead growth among its Macao peers, and MGM China estimates it reached a record-high market share of 16.3% in gross gaming revenue, or GGR, in the quarter, up from 14.3% a quarter ago and 9.5% in 2019. We expect MGM China to continue to benefit from the increase in table allocation, successful remodeling and renovation of gaming floors and suite products, as well as utilization of data analytics and efficient marketing strategies—all these will help it to attract more quality customers with higher spending on both gaming and nongaming segments. However, we think the shares are fairly valued as of the market close on Feb. 14, as we believe the limited room supply remains a constraint, which will slow the company’s earnings growth and lead to a gradual fall in market share eventually.