Recent moves by Melco Resorts & Entertainment to diversify its asset base outside of Macau will “future proof” the company and help it outperform its local peers, according to investment bank Morgan Stanley.
In a research note examining Melco’s non-Macau investments – which include City of Dreams Manila, the recent acquisition of a 19.99% stake in Australia’s Crown Resorts and the purchase this week of parent company Melco Development’s 75% holding in ICR Cyprus – analysts were largely positive
“Looking beyond Macau will make the company future proof and help the company’s attributable EBITDA to outperform peers,” said Morgan Stanley’s Praveen Choudhary and Elise Kennedy.
“In the last five years, Philippines’ EBITDA has grown at a faster pace than Macau’s and generated ROIC of more than 25%. Melco has a valuable monopoly license in Cyprus … and we expect Melco to have a controlling stake in Crown in time. The Crown deal is cash neutral due to high dividend yield of ~5%.”
While Morgan Stanley stated that the Crown and Cyprus acquisitions have stretched Melco’s balance sheet, it has kept the company’s stock rating at Overweight due to near-term market share gains and medium-term growth options, including the potential privatization of Studio City along similar lines to that of CoD Manila.
“We expect Melco to report adjusted property EBITDA of US$406 million (+14% YoY, +0% QoQ), which is better than peers in terms of growth,” the analysts estimated. “We also expect Melco, along with MGM, to see the highest growth in 2019 EBITDA.”
Melco stocks closed Wednesday at US$21.53 with Morgan Stanley setting a 2020 price target of US$25.00.
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