Melco Sees Solid Demand Recovery To 2023; Studio City Phase 2 To Open in Q2

Melco’s lackluster fourth-quarter results were well anticipated by the market, and the company has seen a strong recovery in demand after China eased coronavirus restrictions, leading to its daily EBITDA hitting USD 6 million during the Lunar New Year holiday, compared with a daily average of USD 3.8 million in first-quarter 2019. Management also indicated that post-holiday demand has been resilient, with mass-market gaming volume tracking 70% of 2019 levels, similar to its January performance. We think these positive data points confirm a solid recovery of the Macao gaming sector, and Melco’s plan to open its Studio City phase 2 project in the second quarter positions it to capture the return of traffic to Macao. We maintain our assumption of industry gross gaming revenue returning to 50% of 2019 level in 2023, and we raise our fair value estimate for Melco to USD 12.80 per share from USD 12.40, after updating the property opening schedule and rolling our model forward one year. Our tweaks to the earnings forecast are minor; we expect adjusted EBITDA of USD 856 million in 2023. We think the shares are fairly valued as of the March 3 market close.