Goldman Sachs: Expects Macau gaming stocks to perform steadily in the fourth quarter, lowers MGM CHINA target price to HKD 18.4

Goldman Sachs reports that Macau's gaming gross revenue rose 15% year-on-year to MOP 20.9 billion last month, which is at the lower end of market expectations, partly affected by the VIP room win rate being below normal levels in the last one to two weeks. The annual growth rate of gaming gross revenue for the whole year is slightly above 9%, compared to the market expectation of 7% to 8%. The bank noted that Macau benefited from mainland travelers being diverted from Japan due to tensions in Sino-Japanese relations, with the year-on-year growth of inbound travelers accelerating to 18% in November (up from 11% in October), mainly driven by a 22% year-on-year increase in mainland travelers.

The bank indicated that given the strong momentum of gaming gross revenue in recent months, it expects Macau gaming stocks to announce robust fourth-quarter results in the coming weeks. The industry's quarterly gaming gross revenue rose 14% year-on-year to MOP 66.1 billion, accelerating from year-on-year growth of 1% to 13% in the first to third quarters of last year, returning to 92% of pre-pandemic levels in 2019. Channel surveys show that Galaxy Entertainment (00027.HK) and Wynn (01128.HK) saw slight increases in market share last month, while Galaxy, MGM China (02282.HK), and Sands China (01928.HK) are still likely to be market share winners in the fourth quarter, with SJM (00880.HK), Wynn Macau, and Melco Resorts losing market share.

The bank also mentioned that MGM China announced that starting this year, its licensing fees will double to 3.5% of net revenue, with the annual cap raised to USD 188.3 million for this year. Based on an estimated EBITDA profit margin of 29% to 30%, the new agreement, assuming other conditions remain unchanged, implies a downward adjustment of 6% to 7% for its EBITDA forecasts for the current and next fiscal years, and a downward adjustment of 13% to 14% for profit forecasts. As a result, the bank lowered MGM China's target price from HKD 20.1 to HKD 18.4