The performance of Xinhao International Development 1H19 is in line with expectations

City of Dreams International Development disclosed 1H19 results: adjusted EBITDA increased 15.9% year over year to HK$6.4 billion, and net profit of the mother increased 34.1% year over year to HK$462 million. Xinhao Boya Entertainment, a development subsidiary of City of Dreams International, disclosed 1H19 results on July 24, 2019.

The increase in earnings was due to: 1) the significant increase in the number of VIP transfers at City of Dreams in Macau, compounded by a high win rate; 2) the strong mid-market performance of all of its properties; and 3) the high growth in food service revenue (up 19.2% year-on-year to HK$926 million).

Development trends

Management stated during the performance call on July 24 that 1) the second phase of the Studio City of Dreams project will commence as early as September 2019; 2) Nu Wah Hotel (located in City of Dreams in Macau) will begin renovation in 2020; 3) Regarding the recent suspension of some remote agent betting services in the Philippines, management said it is difficult to determine the extent of impact for the time being. Currently, City of Dreams operates City of Dreams Manila in the Philippines.

City of Dreams International Development also announced an interim dividend of HK$6.11 per share for 2019 (vs. 1H18: HK$4.5 per share).

Profit forecasting and valuation

Since 99% of the net assets of City of Dreams International Development (200.HK) come from its holdings in MLCO.US, its revenue and profit forecasts are based on our MLCO.US forecasts.

The current stock price of 200.HK is HK$17.50, which corresponds to a 37.5% net asset discount and a price-earnings ratio of 11x/11x 2019e/20e. Our target price for MLCO.US is $30.0. Earlier, we gave a target price of HK$200.HK of HK$27.0 based on this target price and a 30% net asset discount.

However, based on recent trends and macro-level uncertainty, we believe it may be difficult for net asset discounts to narrow in the short term. Therefore, we adjusted the target net asset discount to 35% and lowered the target price of 200.HK by 7.4% to HK$25.0. Corresponding to the price-earnings ratio of 16x/15x 2019e/20e, there is room for 42.9% upward from the current stock price.

risks

Competition has intensified in the Cotai region.