Casino operator Melco Resorts and Entertainment Ltd could see its 2021 revenue recover to 50 percent of 2019 levels, says a Thursday note from Moody’s Investors Service Inc.
This would probably be “driven by a faster recovery in the mass-market segment than the VIP segment,” said analysts Sean Hwang, Gloria Tsuen, and Keun Woo Park.
Melco Resorts’ key market is Macau, where it runs the City of Dreams and Studio City resorts on Cotai, and Altira in Taipa. It also runs the City of Dreams Manila casino resort in the Philippine capital, and has gaming operations in the Republic of Cyprus.
Recently-issued Macau government data on the structure of the gaming market in the first quarter, showed that mass-market games – including slot machines – provided 61.4 percent of all Macau’s casino gross gaming revenue (GGR), at MOP14.51 billion (US$1.82 billion).
The figure was up 2.1 percent from the previous quarter, but down 7.4 percent from a year earlier, when the Macau market benefitted from the early portion of first-quarter 2020, prior to the full effects of the Covid-19 pandemic.
Moody’s said that Melco Resorts could see not only incremental growth in its annual earnings, reaching 100 percent of 2019 levels by the year 2023, but also a better level of profit on its returning business.
“We expect Melco Resorts’ margins to be better over 2022 to 2023 than in the pre-pandemic years of 2017 to 2019, because of the increasing proportion of its more profitable mass-market business,” wrote the Moody’s team.
The institution said the quality of Melco Resorts’ credit reflected its “established operations, high-quality assets and good liquidity buffer against the current difficult environment”.
But Moody’s said this was “counterbalanced” by the casino group’s “high geographic concentration in the Macau SAR’s gaming market, and increasingly aggressive growth strategy, as demonstrated through a series of its acquisitions in 2019”.
In June 2019, Melco Resorts had announced it was acquiring for US$375 million, the stake of its parent, Hong Kong-listed Melco International Development Ltd, in an entity developing the City of Dreams Mediterranean casino resort in Cyprus.
Moody’s led its Thursday memo with an opinion on the credit of Melco Resorts Finance Ltd, a unit of Melco Resorts.
It said the finance unit’s ‘Ba2’ corporate family rating reflected the “consolidated credit quality of Melco group under Melco Resorts and Entertainment Ltd”.
This was on the basis that Melco Resorts Finance was a 100-percent owned subsidiary of Melco Resorts, with “limited ring-fencing mechanisms and is the single-largest source of Melco Resorts’ profit and cash flow”.
Obligations rated ‘Ba’ are judged to have “speculative elements and are subject substantial credit risk,” according to Moody’s table of definitions.
Moody’s said additionally that the casino group’s rating was “also constrained by its improving but still depressed revenue and earnings levels, and weak leverage metrics, because of the disruptions related to thecoronavirus pandemic.”
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Managing partner at IGamiX Management and Consulting