Melco Resorts (Macau) Ltd.

This report does not constitute a rating action. Overview Key strengths Key risks Solid presence in Macao, which grants few gaming licenses and caters to a large population base. Exposed to regulatory and social risks in Macao due to concentration of operations there. High-quality assets, with good brand recognition in the gaming markets of Macao, the Philippines, and Cyprus. Macroeconomic headwinds in China could hamper recovery and slow deleveraging. Higher leverage with tighter buffer for the rating. The company increased promotions and improved services to reach more premium mass customers in 2024. The resultant disproportionate growth in operating costs had slowed its EBITDA recovery. However, with promotional activity moderating in recent quarters, we expect MLCO to rein in marketing spending

...EBITDA improvements will help Melco Resorts & Entertainment Ltd. (MLCO, the parent of Melco Resorts [Macau] Ltd. [MRM]) deleverage. The company increased promotions and improved services to reach more premium mass customers in 2024. The resultant disproportionate growth in operating costs had slowed its EBITDA recovery. However, with promotional activity moderating in recent quarters, we expect MLCO to rein in marketing spending as visitor volume improves. This is evident from the sequential decline in daily operating expenses and EBITDA margin increase in the first quarter of 2025. The cost control should aid meaningful expansion of EBITDA margin in 2025-2026. Together with modest growth in gross gaming revenue (GGR), EBITDA may return to 2019 levels by 2026. Adjusted debt was about 70% higher than 2019 levels at end-2024. Therefore, despite the EBITDA recovery that we anticipate over the next two years, debt leverage could be about 4x in 2026, versus 2.6x in 2019. The higher debt reflects...

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