MLCO.US parent company announces 1H18 results
Melco International Development announced 1H18 results: adjusted EBITDA reached HK $5.5 billion, up 9% from the previous month and 17% year-on-year, while net profit reached HK $345 million, up 11% from the previous month and 109% from the same period last year. Earlier, Melco Resorts and Entertainment Ltd (MLCO.US), a subsidiary of Melco International, has disclosed its 1H18 performance, with an adjusted EBITDA of US $757 million, which exceeds market consensus expectations by 1%, in line with China International Capital Corporation's forecast.
We attribute 200.HK 's earnings growth to: 1) new accounting standards such as HKFRS 15 came into effect on January 1, 2018, with no retrospective adjustment to the year-on-year data; 2) lower staff expenses and lower financial expenses (1H18: HK $1.086 billion vs 1H17: HK $1.401 billion); and 3) partial recovery of bad debts.
Trend of development
The company's management said earlier on the 2Q18 results conference call that: 1) the midfield business of City of Dreams Macau was boosted after the opening of the Morpheus Hotel on June 15, 2018; 2) Melco plans to renovate the Nuwa Hotel in phases after the Spring Festival in 2019, lasting for about one year; 3) the renovation of Yingshang Hotel will begin in the second half of 2019.
Melco International also declared an interim dividend of HK $0.045 per share (vs 1H17: HK $0.022), in line with the company's dividend policy of maintaining a dividend yield of 20 per cent. In view of the opening of the Morpheus Hotel, we believe that Melco International is expected to continue to increase its dividend and the final dividend of FY18 may reach HK $0.07 (vs FY17 final dividend: HK $0.04), meeting the needs of long-term investors.
Profit forecast
We keep our MLCO.US FY18e/FY19e revenue and profit forecasts unchanged. Accordingly, we expect 200.HK FY18e/FY19e revenue of HK $41.9 billion / HK $46 billion and adjusted EBITDA of HK $10.4 billion / HK $12.1 billion.
Valuation and suggestion
We maintain the recommended rating of Melco Resorts and Entertainment Ltd (MLCO.US) with the target price of $32.80, corresponding to 14x 2018e EV/EBITDA. Accordingly, we maintain our recommended rating and target price of HK $33.00 for 200.HK, considering that Melco is a holding company, giving it a 39 per cent discount, with 53 per cent upside over the current share price.
Risk.
Increased competition has led to the loss of market share of the midfield business.