Melco International 1H20 results in line
We derive the 1H20 results of Melco International from Melco（MLCO.US）： Net revenue dropped 64% YoY to HK$8.0bn; adjustedEBITDA dropped 74% YoY to HK$1.6bn, net profit was down to-HK$2.2bn. Earnings can be explained by 1） limited patrons havingaccess to Macau due to the global outbreak of COVID-19 sincelate-Jan 2020; and 2） Macau casinos being closed for 15 days inFebruary 2020 and after reopening, strict social distancing measureswere exercised in casinos which led to near 50% capacity cut.
Trends to watch
Per the earnings call in 1H20, Melco remains committed to investingin Japan, although it doesn’t expect operations to begin until 2025.
The company expects a gradual recovery in business rather than aV-shaped recovery. It could also take 7–10 days before any visibleimpact from resumption of tourism visas in the Chinese Mainland isseen on business in Macau.
In August, Studio City （MSC.US） completed a private placement ofClass A ordinary shares to withstand the impact of COVID-19.
US$500mn proceeds were received from existing shareholdersincluding Melco.
Chairman and CEO, Lawrence Ho, has increased his shareholding ofthe company from 55.88% by 1Q20 to 58.28% by 2Q20. As of July 28,2020, Lawrence holds 58.45% of shares.
Financials and valuation
Our revenue and earnings forecasts for 200.HK are based on those ofMLCO.US, as 100% of 200.HK’s net asset value derives from itsshareholding in MLCO.US. We adjust our 2020e/2021e revenueforecasts by -53%/-7%; and estimate 2020e/2021e net losses.
The stock is trading at HK$17.44, implying 39.3% NAV discount（historical average at 33%）。 We apply a 35% NAV discount onMLCO.US’s TP of US$22.8 to arrive at a target price of HK$20.80 forMelco Int’l revising downwards by 17% and offering 19.3% upside.
Risks
Worsening of COVID-19 outbreak; unfavorable regulatory changes;increased competition in Cotai.