Posted: July 21, 2021, 12:52 p.m.
Last update on: July 21, 2021, 2:11 a.m.
MGM Resorts International (NYSE: MGM) and its local partner Orix this week unveiled long-awaited plans for a $ 9.1 billion integrated resort in Osaka.
Perhaps to the delight of some investors, that price is well below the $ 10 billion minimum. This is the number that analysts and industry executives previously estimated it would cost to build a single gaming property in the world’s third-largest economy. One bright spot for MGM and Orix is that their efforts have local support, which moves away from the controversial bickering to bring an integrated resort to Yokohama.
Osaka Governor Hirofumi Yoshimura supports the proposal and expects other local businesses to get involved, in line with our estimate that MGM will own about a third of the economy, ”writes the analyst by Morningstar Dan Wasiolek.
MGM executives highlighted the benefits of being a minority partner in the Osaka project. They note that the statute minimizes initial capital commitments and risks, while providing the trader with sufficient upside potential. It is in what could possibly be one of the fastest growing casino gaming markets in the world.
Osaka may take some time to ramp up MGM stock
MGM stock has fallen 5.56% over the past week. This drop is more the result of investor fears about the impact of the delta variant of the coronavirus on the reopening of trade. But this performance also indicates that Japan does not yet show a material advantage for MGM shares.
It’s easy to see why this is the case. The time to manufacture things in Japan is extremely long. Osaka is expected to submit its casino offer to the federal government in the middle of next year, which means that if the city is selected, the first construction of the integrated complex would begin in 2023.
Based on this time frame, the first opening of a gaming venue in Osaka is 2028. It is expected that the property will open in phases, indicating that it may not be fully operational until 2030.
“While the framework for a license may include around 30% gambling and corporate tax rates, the region’s attractive supply / demand dynamics will generate returns on investment among teens, in our view, supporting thus the narrow gap qualities “, adds Wasiolek.
Assessment of Japan’s impact on MGM’s actions
MGM is the largest operator on the Las Vegas Strip and has a significant portfolio of regional casinos. As such, US gaming properties represent a significant portion of the company’s earnings before interest, taxes, depreciation and amortization (EBITDA).
Morningstar’s Wasiolek says the US will account for 70% of MGM’s 2028 EBTIDA, with the Osaka site assuming it is operational, adding a mid-teens percentage of consolidated EBITDA. He adds that the Osaka casino is not likely to cannibalize MGM China’s two properties in Macau.
“We also don’t expect MGM’s Macau operations (around mid-teens of estimated EBITDA 2028) to be significantly affected by a complex in Japan, as the leading market offers a Conclave of complexes difficult to replicate, while we expect the latter region to have only two city casinos in separate cities, ”the analyst said.