Key points of investment
Affected by low win rates and impairment charges, the results were slightly lower than expected: on the revenue side, 4Q23 achieved net revenue of US$1.09 billion (our estimate was US$1.17 billion), recovering to 75.4% in the same period in 2019. Net gaming/non-gaming revenue of US$90/190 million, respectively, recovered to 71.9%/98.8% in the same period in 2019, respectively. On the profit side, 4Q23 achieved an adjusted property EBITDA of US$300 million (our forecast was US$330 million), recovering to 74.0% in 4Q19. The main reasons for the recovery were weaker than expected: 1) the profit ratio was low, which led to a decrease of US$17 million in adjusted EBITDA of the company; and 2) the impairment loss of US$20 million on Siho Peak. The profit side recovery was still weaker than the revenue side, resulting in the 4Q23 adjusted property EBITDA margin of 27.7%, a gap of 0.5 pct compared to the same period in 2019.
4Q23's Macau properties achieved total gross revenue of US$980 million, recovering to 64.5% in 4Q19: Macau Property Vip/Midfielder (including slot machines) revenue was US$14/8.4 billion, respectively, recovering to 21.9%/96.7% in 4Q19 (lower than 17.4pct/7.2pct for the industry, respectively) in 4Q19.
The recovery of all of the company's businesses is slower than that of the industry. When the market share does not increase, the company's chief operating director resigned, and the company will hire three new personnel to join the company as senior management. According to company data, the company's midfield business has recovered relatively well since 2024. Yingxinghui Hotel has attracted more high-end travelers, driving the average daily midfield and slot machine revenue of Studio City to reach record highs; during the Spring Festival, the company's Macau property midfield GGR also recovered to 122% of the same period in 2019. Meanwhile, the company expects to introduce RFID gaming tables next month to further improve the company's operational efficiency and performance.
Non-gaming continues to increase, and the average daily operating expenses are expected to rise: the company's average daily operating expenses for 1Q24 are US$2.6 million, and the average daily operating expenses are expected to rise slightly in 2024, mainly due to: 1) a new round of special residency shows at Studio City is expected to restart in March; 2) The world's largest water show “Water Dance Room” is expected to reopen before the end of 2024. The company expects the performance to increase the average operating cost of 100,000 US dollars per day; 3) The company is committed to continuously improving the customer experience and is expected to increase the quality of service. Operating costs averaging $100,000 per day. Additionally, Studio City's Cineplex cinemas are expected to open in 2024; non-gaming facilities at Grand Hyatt and Yingshang Hotels will be further upgraded, and the company's capital expenditure for 2024 is estimated at US$360-375 million.
Profit forecast and investment rating: We lowered the company's 2023-2025 net revenue forecast to HK$300.5/351.7/HK$38.49 billion; lowered the adjusted property EBITDA forecast to HK$7.80/97.8/HK$11.23 billion; the current stock price corresponds to 2023/2024/2025 EV/EBITDA by 8.0/6.4/5.6 times, respectively. Our target price is HK$7.2, maintaining a “buy” rating.
Risk warning: Macau's tourism recovery fell short of expectations, China's macroeconomic growth fell short of expectations, overseas gaming markets were diverted, and VIP recovery fell short of expectations.