On August 1, 2023, Melco Boya, a listed subsidiary of Melco International, announced its 2Q23 results.
2Q23's total operating income slightly exceeded expectations: at the revenue end, 2Q23's total operating income was $950 million (Bloomberg's consensus estimate was 930 million yuan), an increase of 32.3% from the previous month to 64.7% of 2Q19, slightly exceeding Bloomberg's consensus forecast of 3%. Of this total, the net income of betting / non-gambling was US $77 million respectively, returning to 59.7% of 2Q19 and 101.6% respectively. The company's non-gambling share increased from 12.1% of 2Q19 to 18.9% of 2Q23, mainly due to the gradual expansion of Studio City International Holdings II in 2023. On the profit side, 2Q23 Melco Boya realized adjusted property EBITDA2.7 billion, an increase of 40.1% month-on-month, returning to 59.7% of 2Q19; the adjusted property EBITDA rate was 28.2%, which increased 1.6pct compared with 2Q19, which still had a 2.4pct gap.
The overall recovery of the company's gaming business in Macau is basically the same as that of the industry: 1) in Macau, the three major properties, City of Dreams, Studio City International Holdings and Melco, together achieved gross gaming revenue of US $860 million, recovering 62.6% compared with the same period in 19 years, leading the industry average 0.6pct. Among them, the GGR of VIP / midfield (including slot machines) was US $180 million respectively, returning to 31.8% of the same period in 19 years, which was 83.6%, respectively, which was lower than the industry average 3.3pct/2.4pct, and accelerated the degree of market recovery compared with the previous month (the VIP / midfield recovery degree of 1Q23 was lower than the industry average 5.8pct/5.5pct respectively) We judge that the acceleration of the company's recovery is mainly due to the gradual volume of the new property Studio City International Holdings II, driving the company's VIP / midfield market share to increase by 1.5pct/1.4pct compared with 1Q23. At the same time, we believe that with the arrival of the summer travel peak in the third quarter, the company's new non-gaming facilities such as water parks are more competitive, and the company's market share is expected to further increase. 2) overseas, 2Q23 City of Dreams (Manila) achieved gross gaming revenue of US $130 million, returning to 60.1% of 2Q19; City of Dreams (Cyprus) opened on July 10, while the company still operates three satellite casinos in Cyprus, 2Q23 Cyprus restored a total of GGR to 137.1% of 2Q19 and adjusted property EBITDA to 118.6% of 2Q19.
With the high increase in non-gaming business revenue, the company is optimistic about the continuous expansion of the company's new properties under the background of the summer travel peak: 1) 2Q23's room revenue has recovered to 92.7% of the same period in 19 years: Star Metro Hotel of the company opened in April, the current occupancy rate has exceeded 90%, the remaining property occupancy rates are more than 80%, significantly higher than 1Q23, promoting the recovery of 2Q23 room revenue to 92.7% of 2Q19. Considering that W Hotel is expected to open in September, which will bring an additional 12.9% (560 rooms) to the company, we believe that the company's 3Q23 room revenue is expected to exceed the same period of 19 years. 2) 2Q23's entertainment & retail revenue returned to 161.0% of the same period in 1919, and we judged that the company's indoor and outdoor water parks and concerts contributed a large increase. The company will continue to hold 90 concerts in the next three years, and will re-launch the large-scale performance "Water Dance Room", which is expected to lead to the continued growth of the company's non-gambling business. 3) the average daily operating cost of 2Q23 Macau property is US $2.4 million (US $2.1 million excluding concert fees), which is slightly higher than 1Q23's US $2 million and about 20 per cent lower than the US $3 million before the epidemic. At the same time, the company expects the average daily operating cost of the 3Q23W hotel to increase slightly to $2.5 million (excluding concert fees) and remain at that level after the opening of the hotel. The company expects this permanent cost savings of 20-25 per cent from before the outbreak to boost EBITDA profit margins to 2pct.
Earnings Forecast and Investment rating: we maintain the company's 2023-2025 net income forecast of HK $38,770,43.39 billion, the adjusted property EBITDA forecast for 2023-2025 is HK $90.1 billion, and the current share price corresponds to 9.1exp. 6.0 times EV/ adjusted EBITDA to maintain the "buy" rating.
Risk hints: Macau's tourism recovery is lower than expected, mainland visa policies are tightened more than expected, and overseas gaming markets are diverted.