By Kate O’Keeffe
Of DOW JONES NEWSWIRES
HONG KONG (Dow Jones)–Shares of MGM China Holdings Ltd. (2282.HK), a casino joint venture between MGM Resorts International (MGM) and a daughter of Macau gambling tycoon Stanley Ho, finished 1.8% higher Friday on their first day of trade following a US$1.5 billion initial public offering in Hong Kong.
The shares opened at HK$16.20 at 0130 GMT, 5.6% higher than their IPO price of HK$15.34, and closed at HK$15.62. Hong Kong’s benchmark Hang Seng Index fell 1.3%.
Ahead of the listing, MGM China sold 760 million shares at the top of the offering’s indicative price range of HK$12.36 to HK$15.34, reflecting investor optimism about Macau’s booming gambling industry. MGM China is the last of Macau’s six casino operators to be listed.
Gambling revenue in Macau rose 42% in May from a year earlier to a record MOP24.31 billion ($3 billion), government statistics issued Wednesday showed. Macau overtook the Las Vegas Strip as the world’s biggest gambling market in 2006 and analysts expect gambling revenue in the Chinese territory to grow to five times the size of the Strip’s this year.
Analysts said MGM China is trading at a discount to its U.S. peers as it doesn’t have the growth pipeline of Sands China Ltd. (1928.HK), which is scheduled to open a new property next year, or the strong history of profitability of Wynn Macau Ltd. (1128.HK). But they said the stock is trading at a higher valuation than local operators Melco Crown Entertainment Ltd. (MPEL), which has a weaker balance sheet, and market leader SJM Holdings Ltd. (0880.HK), where uncertainties remain over succession plans.
Credit Suisse analyst Gabriel Chan, who initiated coverage of MGM China with a Neutral rating and HK$17.50 target price, wrote in a Friday report that he thought the company’s earnings growth would be strong in 2011 but that he was less positive on the longer term outlook for MGM China. “Among the three companies (SJM, Wynn Macau and MGM China) that have applied to have another casino in Cotai, we believe SJM has the highest chance to commence operation first in 2015-2016, while MGM China may only (start) later in 2016-2017, with only 3-4 years left before its gaming license expires in 2020,” wrote Chan.
Macau’s Cotai area is home to the world’s largest casino, Sands China’s Venetian Macao, and Macau’s newest casino resort, Galaxy Entertainment Group Ltd.’s (0027.HK) $2 billion Galaxy Macau.
Following the IPO, Las Vegas-based MGM Resorts International now has a 51% stake in MGM China and joint-venture partner Pansy Ho has a 29% stake, after selling the rest of her shares to the public according to the terms of a deal announced in April. The two partners previously each held a 50% stake in MGM China.
Wall Street analysts have lauded the new structure that gives MGM Resorts a controlling stake in the Macau operator, saying it will give the debt-laden U.S. casino company more exposure to the profitable Macau market and management control over the joint venture.
The listing plan of MGM China comes after the March settlement of a months-long family feud for control of Stanley Ho’s multibillion-dollar gambling empire. A family feud burst into the open earlier this year when the gambling tycoon accused the children of his second wife, including Pansy Ho, of colluding with his third wife, Ina Chan, to steal a company that held the bulk of his assets. They denied his accusations. The dispute was eventually resolved, and Stanley Ho dropped his lawsuit against his family members.
Soaring gambling revenue growth in Macau has helped push shares of Galaxy Entertainment, controlled by the family of Hong Kong tycoon Lui Che Woo, up more than 90% since the start of the year. Shares of SJM and Wynn Macau, the Hong Kong-listed unit of Wynn Resorts Ltd. (WYNN), have both risen over 40% so far in 2011. Las Vegas Sands Corp. (LVS) unit Sands China’s shares have lagged the sector with a 16% rise.
