China sees Macau gaming stabilising as revenue drop narrows

[LOS ANGELES] MGM China Holdings Ltd reported a slowing pace of revenue decline in the second quarter as more recreational gamblers plunked down bets. Shares advanced to a weekly high.

The casino operator's revenue fell 19 per cent from a year ago to HK$3.5 billion (S$605 million), it said Thursday. The pace of decline in revenue slowed from a drop of 25 per cent in the previous quarter. The company posted HK$1.03 billion in earnings before interest, taxes, depreciation and amortisation.

Investors are divining Macau casino operators' results for signs of a recovery in the world's largest gaming market, which has been mired in a two-year slump after a government crackdown on corruption and graft that increased scrutiny on lavish spenders.

The opening of the MGM Cotai next year, along with Wynn Resorts Ltd's US$4.1 billion Wynn Palace later this month and Las Vegas Sands Corp's $2.7 billion Parisian in September, are being closely watched for their impact on the industry.

"The company is experiencing a deepening of customer quality, with returning frequency of known customers," wrote Sanford C Bernstein & Co analysts, led by Vitaly Umansky, who reiterated the company's outperform rating in a note Friday.

MGM China shares gained as much as 3.7 per cent in Hong Kong trading Friday, jumping to the highest level this week. The stock has gained about 16 per cent this year.

The high end of the gaming market dominated by so-called VIP customers could take as long as three years to come back, James Murren, chief executive officer of parent company MGM Resorts International, said in an interview Thursday.

While the increased room supply could result in hotel price discounts, the more important factor will be whether betting by mass-market gamblers increases as a result of the new properties, he said. A 4.5 per cent drop in Macau betting last month was smaller than analysts expected.

"We think the market has stabilized and started to improve," he said.

The US$3.1 billion MGM Cotai's opening was pushed back to the second quarter of next year, at least the third time it's been postponed.

MGM Resorts posted second-quarter earnings that beat analysts' estimates as profit growth in Las Vegas made up for sluggishness in Macau. MGM rose 1.2 per cent to US$24.06 at the close in New York Thursday.

MGM Resorts total sales fell 4.8 per cent to US$2.27 billion, trailing analysts' projections of US$2.33 billion.

Gaming revenue from high rollers fell 10 per cent from the previous quarter and 31 per cent from a year earlier. MGM China's adjusted earnings of HK$1.03 billion is a 10 per cent decrease compared to the prior year quarter.

In Macau, revenue from tables frequented by recreational gamblers increased 0.9 per cent from the previous quarter, Deutsche Bank AG analyst Karen Tang wrote in a note Friday. The sequential growth in revenue from recreational gamblers "is particularly encouraging as the other two strong players in premium mass market, Wynn Macau and Melco Crown saw declines," she wrote.

Operators including Wynn Macau Ltd, Galaxy Entertainment Group Ltd, and Melco Crown Entertainment Ltd are wooing tourists and mainstream gamblers to Macau with new family- friendly resorts.

The Wynn Palace will offer air-conditioned cable car rides and Sands China Ltd's Parisian will feature a half-size Eiffel Tower replica when they open in coming months.

BLOOMBERG