Melco Resorts Earnings: Results in Line With Market Share Gain, but Cost Moved Higher

Narrow-moat Melco Resorts’ second-quarter performance was largely in line with our and the market expectations, with market share in gross gaming revenue, or GGR, rising to 14.8% from 14.2% a quarter ago. Nevertheless, adjusted EBITDA margin fell 77 basis points to 26.1% from a quarter ago due to higher cost. We expect cost to rise further amid higher reinvestment in both gaming and nongaming offerings to boost revenue and defend market share, as competition among Macao casinos is intensifying. We cut our fair value estimate to USD 10.80 per share from USD 11.60, after lowering our 2024-28 revenue forecast by 0%-4% and adjusted EBITDA by 4%-7%, to incorporate slightly weaker sales growth amid slower economic growth and still-sluggish consumption sentiment in China as well as higher operating expenses.