Melco Resorts & Entertainment: A Strong Recovery in Macao's Gaming Market

Melco Resorts & Entertainment Limited (MLCO) has announced the release date for its unaudited financial results for the fourth quarter and year ended December 31, 2024, scheduled for Thursday, February 27, 2025. The company will host a conference call on the same day at 8:30 a.m. Eastern Time (or 9:30 p.m. Singapore Time). This article explores the key factors driving the recovery of Macao's gaming market and the positive impact on Melco's business prospects.



Macao's gaming market has witnessed a strong recovery in 2023, with mass gaming revenue (GGR) recovering to 75%-85% of 2019 levels. This rapid recovery has been driven by several key factors:

1. Relaxation of COVID-19 control measures and travel restrictions: The relaxation of these measures has led to an increase in visitor numbers, boosting gaming revenue. In the first quarter of 2023, industry mass GGR recovered to 67% of the level of the first quarter of 2019 (Source: Fitch Ratings, May 15, 2023).
2. Strengthening of the mass-market segment: The mass-market segment has been recovering faster than the VIP segment. In the first quarter of 2023, mass GGR recovered to 67% of the 2019 level, while VIP GGR recovered to 23% (Source: Fitch Ratings, May 15, 2023). This trend is expected to continue, with mass GGR reaching 75%-85% of 2019 levels in 2023 and fully recovering in 2024.
3. Opening of new resorts and facilities: Melco's Studio City Phase 2 opened on April 6, 2023, contributing to the group's revenue and cash flow. Additionally, the completion of City of Dreams Mediterranean in 2023 will provide further growth opportunities.
4. Macao's new gaming concession: Melco has secured a new gaming concession in Macao, which allows the group to continue operating in the region. The new concession requires Melco to invest about US$1.5 billion in capital and operating expenses, supporting non-gaming amenities and events, which can further boost the group's revenue and cash flow.

These factors combined contribute to a positive outlook for Melco's business prospects, as the group is well-positioned to benefit from the ongoing recovery in Macao's gaming market. The company's debt-to-EBITDA ratio is expected to drop to 3.8x in 2024, below the downgrade threshold of 4.5x. This improvement in leverage, along with a return to healthy free operating cash flow, supports a stable rating outlook for Melco's operating subsidiaries (Source: Fitch Ratings, May 15, 2023).

In conclusion, the strong recovery in Macao's gaming market, driven by the relaxation of COVID-19 control measures, the strengthening of the mass-market segment, and the opening of new resorts and facilities, bodes well for Melco Resorts & Entertainment Limited's business prospects. The company's stable rating outlook reflects its ability to recover its revenue and cash flow strongly in 2023 and reduce its leverage to below the downgrade threshold in late 2023 or early 2024. Investors should closely monitor the company's earnings release and conference call for further insights into its financial performance and growth prospects.