MGM China Profit Misses Estimates on Rising Competition

MGM China Holdings Ltd., a Macau casino operator, reported third-quarter profit that missed analyst estimates amid rising competition in the world’s largest gambling market.

Adjusted earnings before interest, taxes, depreciation and amortization, or Ebitda, excluding a branding license fee, rose 26 percent to $198.8 million, from $157.5 million a year ago, according to a filing yesterday from MGM Resorts International, the company’s U.S.-based parent. That lagged the average estimate of $202 million from nine analysts compiled by Bloomberg.

MGM faces increasing competition from bigger rivals such as Sands China Ltd. and Galaxy Entertainment Group Ltd. which already have projects on the increasingly popular Cotai Strip in Macau, a piece of reclaimed land that is Asia’s equivalent of the Las Vegas Strip. MGM has one Macau casino on the peninsula and is building its second resort in Cotai.

“On the mass segment, MGM lost a bit of market share in third quarter,” Karen Tang, a Hong Kong-based analyst at Deutsche Bank AG, wrote in a research note today. The company still managed to grow mass revenue by 4 percent from the second quarter, she added.

At its existing casino, MGM China continues upgrading the main floor area while targeting premium mass customers. The company plans to add about 60 to 70 high-limit slot machines next year after remodeling its Supreme Lounge, Chief Executive Officer Grant Bowie said in a conference call, according to a Bloomberg Transcript of the event.

Sands China Ltd., Galaxy Entertainment Group Ltd. and Melco Crown Entertainment Ltd. are also adding new attractions to their casino resorts in Cotai to lure mainland Chinese gamblers, who make up two-thirds of gambling revenue in the former Portuguese colony.

Stock Performance

Shares of MGM China rose 1.1 percent to close at HK$27 in Hong Kong trading. The stock has gained 93 percent this year, compared with the benchmark Hang Seng Index’s 2.6 percent gain.

MGM’s Cotai project is on track for early 2016 opening, CEO Bowie said at the call. Deutsche Bank AG lifted the stock price target to HK$29.2 from HK$26.8 today on the back of improving visibility on the Cotai project. The bank has a “hold” rating on the stock.

Net revenue at MGM China climbed 22 percent to $808.5 million, mainly because of VIP revenue and main-floor table games, according to the filing.

Turnover at MGM China’s VIP-room gambling tables rose 28 percent from a year earlier, and wins increased 31 percent for main-floor tables and 4 percent for slot machines, MGM said.

Macau casino mogul Stanley Ho’s daughter Pansy Ho holds a 27 percent stake in the company. Ho is Hong Kong’s richest woman with a net worth of $4.7 billion, up $2.8 billion so far this year, according to the Bloomberg Billionaires Index.

Gambling revenue in Macau, the only place in China where casinos are legal, gained 17 percent to $33 billion in the first nine months of this year, after raking in $38 billion in 2012.

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