MGM China:In line with expectations,Market share loss in 4Q

What surprised us

MGM China’s 4Q16 corporate EBITDA dropped 8% qoq to HK$1.14bn, inline with our estimates and lagging the industry (+4% qoq on average),due to 1) soft mass-market GGR (-10% qoq vs. industry +5%), which MGMattributes to disruption brought by the temporary closure of a restaurantas well as an unfavorable hold rate; and 2) increase in opex (we estimatecash opex rose 9% qoq). Similar to 3Q, MGM benefited from favorable luckwhich enhanced its EBITDA by US$15-17mn, adjusted for which, groupEBITDA would still be -9% qoq. Overall, MGM’s GGR market sharedropped 0.6pp to 7.8% (VIP rolling: -2.3pp to 7%; mass: -1.1pp to 6.6%),likely losing share to Wynn (1128.HK, Buy, last close HK$13.98) as weflagged in our preview note (Asia Pacific: Gaming: Corp day takeaways:Strong VIP, focus on dividend; Buy SJM/Wynn, Jan 9, 2017).

Key takeaway: (1) Similar to other operators that have reported and in linewith the industry’s revenue trend over the past two weeks, MGM observedsolid patronage after Chinese New Year. (2) After the Jan. announcementthat MGM Cotai’s opening would be delayed to 2H17 from 2Q17, mgmtsaid it will likely provide more clarity after its March board meeting. Capexbudget has been raised moderately, by US$130mn to US$3.3bn. Mgmtremains committed to a successful opening and plans to shift 40% ofexisting Macau Peninsula staff to MGM Cotai. We model US$393mnEBITDA in 2018E from the project by assuming 4.1% GGR share. (3) MGMdeclared a final dividend of HK$0.16/share (HK$0.09 in 2015), implying a35% payout ratio (30% in 2015), in line with its committed payout.

What to do with the stock

We fine-tune our FY17E-18E EBITDA by 1% and our 12m SOTP-based TP toHK$18.40 (from HK$18.60) on results. While competition from new casinosmay present near-term earnings risk, we see upside potential on a 12-monthview. Maintain Buy. Risks: Further Cotai project delays, soft GGR trend.