Morgan Stanley lifted its target price for MGM China Holdings (02282) to HK$22 from HK$17, and upgraded its rating from "equal-weight" to "overweight".
The research house said MGM has underperformed the Hang Seng Index by 26% and Macau group year-to-date by 21% as it lost market share and delayed opening its Cotai project.
Morgan noted four reasons for our upgrade - (1) In the next 12 months, the market should be looking at 2019 multiples, at which MGM is trading at 10x EV/EBITDA and 9% FCFE yield. (2) Dividend yield should exceed 5% in 2019e and grow sustainably. (3) The stock tends to outperform ahead of casino openings. (4) Cotai will double or triple the size of the company in terms of GFA and number of hotel rooms, and potentially revenue and EBITDA growth in 2018/19, which Morgan thinks could drive re-rating similar to Wynn Macau.
It expects MGM Cotai to generate EBITDA of US$233mn in 2018 and US$395mn in 2019, driven by mass market share of 4.4%/5.1% in 2018/19.
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