Studio City Co. Ltd.

Overview Key strengths Key risks Solid presence in Macao, which grants few licenses and caters to a high population base. Operations at a single property in the Macao gaming market, rendering it vulnerable to economic cycles and social risks in the terriority. Likely support from parent Melco Resorts&Entertainment Ltd. (MLCO). Macroeconomic headwinds in China could hamper recovery and slow deleveraging. Weak credit metrics at least through 2023, with recovery likely over the next 18 months or so. In the first quarter of 2023, Macao's mass GGR recovered to 67% of the level of the first quarter 2019. Our base case assumes mass GGR in the region will recover to 75%-85% of 2019 levels this year and 100% in

...A rapid recovery in Macao's mass market gross gaming revenue (GGR) to support deleveraging at parent. In the first quarter of 2023, Macao's mass GGR recovered to 67% of the level of the first quarter 2019. Our base case assumes mass GGR in the region will recover to 75%-85% of 2019 levels this year and 100% in 2024. In the first quarter 2023, the reported EBITDA of MLCO, the parent and credit driver of Studio City Co. Ltd. (Studio City), recovered to about 50% of the level of the first quarter of 2019, adjusted for normal win rates. The recovery should accelerate over the next several quarters, on the back of higher Macao visits, higher availability of hotel rooms, and incremental contributions from Studio City Phase 2 (a resort that opened on April 6, 2023). We forecast MLCO's EBITDA will be 70% of 2019 level in 2023 and 3% higher than 2019 in 2024. Our forecast implies that MLCO's debt-to-EBITDA ratio will drop to 3.8x in 2024 from 6.3x in 2023, compared with 2.7x in 2019. Studio City...

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