Melco Resorts and Entertainment closed out 2018 strong. Its gross gaming revenue (GGR) grew 5% in the last period of the year, reaching $1.40 billion, thanks to a string of good luck at all of its properties, as well as a stronger performance at its City of Dreams (COD) venue in Macau. On the downside, if new revenue standards had not been implemented last year, according to Melco, its GGR would have increased by 12% year-on-year.
Operating income in the quarter increased to $204 million – a 58% increase over the same period a year earlier. Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) jumped 25% to reach $425.2 million and net income saw a 57.6% increase, climbing from $81.2 million a year earlier to $128 million.
COD reported a drop in revenue of 7.3% to $155.2 million. However, its adjusted EBITDA came in higher, reaching $67.9 million for an improvement of 26.2%.
Across the company, the rolling chip volume shrank to $2.5 billion from the previous $5.7 billion, while the win rate increased from 2.8% to 3.8% Mass market activity dropped to $825.4 million, but the hold rate kept steady at 27% compared to the 26.1% seen in the last quarter of 2017. The handle on gaming machines bumped up by 19.1% to $641.8 million.
The performance of the company led Union Gaming analyst Grant Govertsen to state, “Although VIP volume was flat, the property saw significant growth in mass, with volume +7% and GGR +23%. We attribute the growth primarily to the impact of Morpheus, partially offset by the lack of smoking in premium mass areas. Importantly, mass hold rate is inching closer towards the mid-30% range that COD consistently delivered in the past, with management expecting hold to maintain in the low-30% range based on an improved mix of business and longer length of play. This can be directly tied to the impact of Morpheus. Quite frankly we prefer to see Morpheus drive mass more than VIP and are comfortable with the respective growth trajectories of VIP and mass within COD/Morpheus. For the whole of 2019 we expect VIP volumes to be up modestly while mass GGR grows in the low double digits, or in line to slightly ahead of our market-wide expectations for each.”
The analyst added, “As the upgrades to COD begin to take hold, and with a much rosier outlook for Studio City in the out years as it expands and reaches more of a critical mass within the non-premium mass segment, we are maintaining our Buy rating on shares of MLCO. We are also raising our forward estimates as detailed herein. Our PT goes to $28 (+$6) primarily on higher estimates, as well as slightly higher multiple applied to COD Macau as Morpheus turns into a game changer for the property.”
Because of the strong quarter, Melco’s chairman and CEO, Lawrence Ho, stated that the quarterly cash dividend would be increased by 7% to $0.01517 per ordinary share.
