Melco International 1H19 results in line
Melco International announced 1H19 results: adjusted EBITDA grew15.9% YoY to HK$6.4bn, net profit grew 34.1% YoY to HK$462mn.
Recall, Melco International’s subsidiary MLCO.US reported 1H19results on July 24, 2019.
Earnings grew on significant VIP rolling growth at City of DreamsMacau coupled with good win rate; robust mass performance acrossall properties; and strong growth from catering service income（+19.2% YoY to HK$926mn）。
Trends to watch
Per Melco’s earnings call on July 24 2019: construction work forStudio City Phase II could start as early as Sep 2019; and the NWAhotel （part of City of Dreams Macau） should start renovation in 2020.
Melco Int’l declared an interim dividend of HK6.11 cents per share for1H19 （vs. 1H18: HK4.5cents per share）。
Management believes it is too early to gauge the impact from an endto some of the proxy betting practices in the Philippines, whereMelco operates City of Dreams Manila.
Financials and valuation
Our revenue and earnings forecasts for 200.HK are based on those ofMLCO.US, as 99% of 200.HK’s net asset value derives from itsshareholding in MLCO.US.
The stock is trading at HK$17.50, implying 37.5% holding companydiscount and 11x/11x 2019e/20e P/E. Previously we applied 30%holding company discount on MLCO.US’s TP of US$30.0 to arrive at atarget price of HK$27.00 for Melco Int’l.
Based on recent trends and continued overhang of macrouncertainties, we believe it will be difficult for the discount to narrowin the short run. Thus, we apply a 35% holding company discount toderive a new target price of HK$25.00, revising downwards by 7.4%and implying 16x/15x P/E, offering 42.9% upside.
Risks
Increased competition in Cotai.