Melco Resorts Earnings: Solid Recovery Continues, With Studio City Phase 2 Driving Further Upside

In line with Macao’s gross gaming revenue recovery, Melco Resorts & Entertainment delivered a strong second-quarter performance, with revenue and adjusted EBITDA returning to 66% and 60% of 2019 levels, respectively. With hotel room supply and transportation capacity continuing to recover, we expect Melco Resorts to extend this robust growth momentum in the second half. We have raised our Melco 2023 forecasts for revenue by 22% to $4.1 billion and for adjusted EBITDA by 29% to $1.1 billion after lifting our industry GGR to MOP 181 billion, or 62% of 2019 levels (up from 50% in our earlier assumption), to reflect a more upbeat recovery outlook in 2023. We are maintaining our longer-term GGR and profit forecasts. Accordingly, we have raised our fair value estimate for Melco to $13.50 per share from $12.80. We think the shares are fairly valued currently, with a continued recovery of tourism traffic to Macao likely supporting the price in the near term.