Investment Thesis
　　2Q23 Melco’s operating revenue slightly exceeds expectations: Net revenue was
　　USD947.9m （+32% q-o-q） to 64.5% of 2Q19 level, slightly surpassing the Bloomberg consensus estimate by 3%, and of which non-gaming revenue accounted for 18.9% （+6.8 pct vs 2Q19）。 Adjusted property EBITDA was USD267.3m （+40% q-o-q） to 59.7% of 2Q19 level, implying 28.2% margin （-2.4pct vs 2Q19 but +1.6pct q-o-q）。 We see EBITDA margin to continue expanding with continued ramp-up of mass market traffic and rising contribution from higher-margin non-gaming businesses.
　　Macau gaming recovery in line with the industry: 1） In Macau, the gross gaming
　　revenue （GGR） of three main properties was USD860m in 2Q23 to 62.6% of 2Q19 level, outpacing the 2Q Macau market recovery by 0.6pct. VIP and mass market （including slot machines） GGR was USD177/682m, which were respectively 31.8% and 83.6% of 2Q19 levels, slightly trailing the industry average by 3.3pct/2.4pct （vs 5.8pct/5.5pct in 1Q19）。
　　We believe the faster recovery can be attributed mainly to the gradual ramp-up of Studio City Phase Ⅱ， which has driven a 1.5pct/1.4pct increase in the company’s VIP/mass market share compared to 1Q23. Additionally, with the peak summer season arriving, Melco’s market share is expected to further improve with the newly added non-gaming facilities such as the indoor water park. 2） Regarding overseas operations, the GGR of CoD Manila was USD126m to 60.1% of 2Q19 level and the GGR of the Cyprus properties （including CoD Mediterranean and three satellite casinos） was 137.1% of 2Q19 level.
　　Sustained ramp-up of Studio City during the peak summer season: 1） In 2Q23, room revenue recovered to 92.7% of 2Q19 level as the occupancy rate of Epic Tower （opened in April） was above 90% while other properties achieved occupancy rates above 80%. With the anticipated opening of W Hotel in September, providing an additional 12.9% （560 rooms） of room capacity, we expect the company’s room revenue in 3Q23 to surpass that in 3Q19. 2） We attribute the high growth in entertainment & retail revenue （161% of the 2Q19 levels） was primarily due to the significant contribution from the indoor and outdoor water parks and concerts. The company plans to host 90 concerts over the next three years and will reintroduce the large-scale performance, 'The House of Dancing Water,' which is expected to sustain high growth in the non-gaming business. 3） Opex up from USD2.0m to USD2.4m in 2Q23, and is expected to stabilize at USD2.5m after the opening of W Hotel in 3Q23 （vs USD3.0m in 2019）。 This 20-25% permanent cost savings can be translated into 200bps margin.
Earnings Forecast & Rating: We maintain our net revenue forecasts as of HKD32.8/ 38.8/43.4bn for 2023-2025 and our 2023-2025 adjusted property EBITDA forecasts as of HKD9.0/11.7/13.8bn, corresponding to 2023-2025 EV/adjusted property EBITDA of 9x/ 7x/6x. We maintain a 'Buy' rating.
Risk: Slower-than-expected recovery in Macau's tourism, tighter-than-anticipated mainland visa policies, and diversion of gambling demand to overseas markets.