Melco Resorts Earnings: Recovery Continues, but Performance Lagged Industry Peers

We lower our fair value estimate of Melco Resorts to $12.60 per share from $13.50, following the company’s weaker-than-expected third-quarter results. We think the miss is primarily due to a weaker VIP volume and win-rate at the company’s Macao properties, while the mass segment performance and overseas business were largely in line with expectations. Management remains upbeat about the overall recovery trend in Macao, with nonjunket VIP revenue in October hitting the 2019 levels. However, elevated debt, coupled with the rising interest rate, have dampened the bottom line and Melco remained in net loss of $121 million in the quarter. This is slightly disappointing, as major peers have already returned to net profit in the first half of 2023. The shares fell sharply by 15% after the earnings release on Nov. 7, amid market concerns over the company’s elevated debt and interest expense. We think the selloff is overdone, and the shares are undervalued currently.