Melco Resorts & Entertainment City should try to sell its interest in its Philippines casino City of Dreams Manila and Cyprus resort City of Dreams Mediterranean to fund full acquisition of Macau’s Studio City and a potential Thai casino stake, according to Seaport Research Partners.
The suggestion from Seaport’s Vitaly Umansky formed part of his 4Q24 Macau results preview in which he predicted the company would lose some Macau market share due to competitors ramping new property offerings and optimizing marketing.
While the analyst believes Melco shares, like most Macau stocks, remain undervalued, he also notes that investor sentiment around the company remains poor and will likely remain so unless some notable corporate actions are taken. These, he said, could include full acquisition of Studio City – Melco currently owns around 55% – or bringing together NASDAQ-listed Melco Resorts & Entertainment with its Hong Kong-listed parent Melco International Development Ltd.
According to Umansky, long-term upside for Melco would be best achieved by disposing of some of its less profitable operations.
“Outside Macau, the Philippines (City of Dreams Manila) continues to generate cash but lacks real growth dynamics due to increasing Manila competition, while Cyprus has been a disappointment partly due [the conflicts in] Russia and Israel,” he wrote.
“We remain of the view that Melco would be better off at this stage, with low valuation and high debt, to try to sell its Philippines and Cyprus assets and reallocate the capital.”
Studio City aside, another option could be Thailand where Melco recently confirmed its interest in developing an integrated resort. While Umansky believes the company’s limited capital could make a large investment in Bangkok challenging, Melco’s “advantage may lie in its ability to do a lower capital investment deal with local partners [like it has in Sri Lanka), potentially in a secondary market in Thailand.”
The analyst noted that, even with new management appointed last year to optimize casino operations in Macau, market share has remained largely unchanged at 14.8% in Q3 and an estimated 14.7% in Q4.
More broadly, Seaport is forecasting Macau-wide EBITDA growth of 9% in 2025 with big guns Sands and Galaxy tipped to gain share due to the former finishing upgrade works on The Londoner Macao and Venetian Arena and the latter on the mid-year opening of the all-suite Capella at Galaxy Macau.
RelatedPosts
