TLDR
- Seaport Research Partners says selling City of Dreams Manila could help Melco reduce debt
- Melco’s Manila property beat expectations in the second quarter with property EBITDA up 9%
- Macau operations stayed under pressure with revenue down about 9% year-on-year
- Melco’s total debt fell to $7.1 billion from $7.9 billion
- Cyprus operations saw EBITDA jump 60% year-on-year despite disruption from the Middle East conflict
Melco Resorts & Entertainment could reduce its debt by selling City of Dreams Manila, according to Seaport Research Partners. The brokerage made this assessment even though the Philippine resort posted better-than-expected results in the second quarter.
Senior analyst Vitaly Umansky said Melco’s failed attempt to sell the property last year should not stop the company from trying again. Seaport believes a sale could still create value even at a lower price than what Melco previously wanted.
Melco had explored a sale of its Manila interest before, but no deal was reached. Seaport’s new view suggests that earlier setback should not close the door on another attempt.
Manila Results Beat Expectations
City of Dreams Manila had a stronger quarter than analysts expected. Seaport estimated property EBITDA rose 9% year-on-year.
That gain came alongside weaker VIP numbers. VIP rolling-chip volume dropped 25% from the previous quarter, and a VIP hold rate of 2% weighed on results.
Mass-market gaming volume stayed roughly steady compared with the prior quarter. Seaport expects the Manila property to remain stable overall.
Competition in the Philippine capital is expected to keep pressuring the business. Seaport also said investor interest in the property has stayed limited, viewing it as more of a burden than a benefit for Melco.
Macau Remains Under Pressure
Melco’s total debt stood at $7.1 billion at the end of the second quarter. That is down from $7.9 billion in the first quarter of 2023.
Seaport said the group’s debt load remains manageable. The firm does not see a serious refinancing risk in the near term.
Still, Seaport believes selling the Manila property could speed up debt reduction. It would also let Melco put more focus and resources into its main Macau business.
Melco reported second quarter operating revenue of $1.25 billion, down around 6% year-on-year. Adjusted property EBITDA fell about 20% to $303.8 million.
Seaport called the overall results in line with expectations. Stronger showings in Manila and Cyprus helped offset a weaker Macau performance.
Macau revenue alone fell an estimated 9% year-on-year to $1.05 billion. Macau property EBITDA dropped 26% to $249 million, while hold-adjusted EBITDA fell about 16% to $258 million.
Seaport tied the soft Macau number to low VIP hold and a 7% drop in non-gaming revenue. Melco’s estimated Macau market share slipped to 14.7%, down 1 percentage point from a year earlier.
Seaport expects Melco’s Macau market share to stay in the mid-to-high 14% range. Rival operators continue expanding their properties and marketing efforts, which keeps pressure on Melco.
The new all-suite REM Hotel at City of Dreams Macau could offer some lift. Competition for premium players is still expected to limit margins going forward.
In Cyprus, property EBITDA jumped 60% year-on-year and more than doubled from the prior quarter. That result beat Seaport’s expectations, even with disruption tied to the conflict in the Middle East.
Manila outperformed while Macau stayed weak this quarter. Seaport says a Manila sale remains one path for Melco to cut debt and refocus on its core Macau business.
