MGM China reported 3Q22 net revenue of HK$687m (-69% YoY, -39% QoQ), and adjusted Ebitda of HK$-535m, lower than our expectation. We lower EPS forecast from -HK$0.84 to -HK$1.13 in 22E (- 32% YoY), lower 23E forecast from -HK$0.02 to -HK$0.34 (+70% YoY), and lower 24E forecast from HK$0.13 to HK$0.25 (+174% YoY). We lower target price from HK$4.8 to HK$4.5. With 13% upside potential, we maintain Outperform rating. 3Q22 results. The company’s total gross gaming revenue (GGR) declined 70% YoY and 38% QoQ, recovering to 10% of pre-pandemic levels. Mass revenue and VIP rolling chip volume recovered to 15% and 4%, respectively. By property, MGM Cotai’s adjusted Ebitda was -HK$308m and MGM Macau’s adjusted Ebitda was -HK$227m.
Public tender. The fresh public tender for Macau gaming rights was launched on July 29 and run until September 14. The concessionaires have submitted tender proposals in September, and are now in the consultation phase of the tender program. The tender could be concluded before year- end, and January 2023 is expected to be the first year of new concessions.
E-visa system restarted on Nov 1. The use of electronic processing on applications for visas to visit Macau either for individual travel or as part of a group was resumed on November 1. We believe it is an important driver for Macau’s gaming sector recovery.
Maintain Outperform. With the ongoing process of the public tender, we expect a valuation rerating in the short term for the gaming sector. The current low recovery also suggests great earnings upside potential. We lower target price from HK$4.8 to HK$4.5. With 13% upside potential, we maintain Outperform rating.
Risks: Lower-than-expected revenue recovery.