Location should help
Now that MGM Cotai has finally opened, analysts are having their say about the rate of ramp-up at the newest resort on Macau’s Cotai Strip.
According to GGRAsia, Morningstar Inc. analyst Chelsey Tam said the US$3.4 billion resort, promoted by MGM China Holdings Ltd., should demonstrate a “decent” ramp-up speed “mainly because the adjacent Wynn Palace opened in August 2016 and it has ramped up strongly.”
“Given the recovery of the gaming market and the decent accessibility, we expect MGM Cotai to see faster ramp up compared with the initial launch of Wynn Palace,” said Tam, adding that the launch was “quite successful” judging from data the brokerage gathered.
“Foot traffic in the retail area and the base mass gaming section of MGM Cotai was very strong on the opening night, though the foot traffic tapered off closer to the high-end side of the property,” the note said. “The opening was just in time to capture the seasonally strong Chinese Lunar New Year holiday,” in which gambling and tourism historically see a big surge.
Tam further said the opening of MGM Cotai could mark “the reverse of the recent market share loss trend for MGM China and the increase in competitiveness of the Cotai East area, especially versus the Macau peninsula.” She concluded that “a footing in Cotai will give MGM China an even stronger market position.”
Grant Govertsen of Union Gaming Securities Asia Ltd. agreed, telling local media that MGM Cotai should “be able to ramp up just as quickly as— probably quicker than—other properties here on Cotai.”
But analysts at Sanford C. Bernstein Ltd. take a slightly more pessimistic view. Vitaly Umansky, Zhen Gong and Cathy Huang believe “ramp-up will not be achieved quickly” at the resort.
“While the property brings some new elements to Macau (digital theatre, grand atrium with digital art) and MGM’s food and beverage offering has greatly improved, the casino layout, in our view, is not ideal and suffers from the property’s long, narrow footprint.
“The building was opened to the public at 7:30 p.m., but visitors into the property were slow to arrive and we did not witness large crowds,” the team wrote. “While the casino was somewhat full later in the evening, the numbers of people appeared significantly lower than seen during the Parisian Macao and Wynn Palace openings.”
However, the Bernstein analysts say MGM Cotai will get “a better share” of walk-in patrons compared to Wynn Palace due to its location next to Sands Cotai Central, City of Dreams Macau and Wynn Palace. “But the high-end business will not be as impressive” as that of Wynn Palace, they added.
MGM China CEO Grant Bowie would not speculate on the speed of ramp-up. “Every time a new property opens, normally you hope it would create an upward inflection in the visitation,” he said. “But the reality we’ve also seen is that these properties took a little bit longer to ramp up than the previous.”
In a bullish column in the Motley Fool, Travis Hoium wrote that the Cotai resort is “arguably MGM’s most important resort since completing CityCenter in 2009.
“MGM Cotai will greatly expand the company’s presence in Macau with 1,400 hotel rooms, a 2,000-seat theater, and over 300 pieces of contemporary art. Most importantly, MGM Cotai gives MGM Resorts a presence in the lucrative Cotai region.”
Hoium continued, “I would be surprised if MGM Cotai generates as much EBITDA as Wynn Palace or Venetian Macau, but an annual run rate of $600 million of adjusted EBITDA or more would be a big win for MGM Resorts and a very strong return on its $3.4 billion investment.”
