Melco International reports FY18 results
Melco International Development announced FY18 results: adjustedEBITDA grew 10.7% YoY to HK$10.9bn, net profit grew 10.2% YoY toHK$522.6mn, beating our estimates by 5%. Recall, MelcoInternational’s subsidiary MLCO.US reported FY18 adjusted EBITDA ofUS$1,478mn on February 19.
We attribute 200.HK’s earnings growth to: 1） the ramp up ofMorpheus hotel since its opening on June 15, 2018; 2） completion ofrenovations at City of Dreams Macau having ended disruption to thebusiness; and 3） continued growth in the mass segment in Macau,where Melco’s strengths lie.
Trends to watch
Starting January 1, Melco was granted 40 new mass gaming tablesfrom the Gaming Inspection and Coordination Bureau （DICJ）， forrecognition of the successful opening of Morpheus.
Melco announced a final dividend of HK 2.35 cents per share for 2018（vs 2017: HK 4 cents）， bring total divided per share in 2018 to HK 6.85cents （vs 2017: HK 6.2 cents）， in line with its dividend policy ofmaintaining 20% payout ratio.
Earnings forecast
We maintain our revenue and earnings forecast for MLCO.US.
Accordingly, we forecast 200.HK’s FY19e and FY20e revenue to beHK$43bn and HK$44bn and FY19e and FY20e adjusted EBITDA to beHK$11.8bn and HK$12.3bn, as FY18 beat our expectations.
Valuation and recommendation
We maintain HOLD on MLCO.US and a target price of US$19.80,equivalent to 10x FY19e EV/EBITDA. Accordingly, we maintain HOLDon Melco International （200.HK）， but raise our target price 5% toHK$16.80, implying a 30% holding company discount and 8.7%downside from current stock price.
Risks
Loss of market share in mass segment due to increased competition.