Melco Resorts free cash flow positive in 2023: Lucror

Published 7 March 2023

Casino operator Melco Resorts and Entertainment Ltd should be able to generate “mildly positive free cash flow after interest and capital expenditure” in financial year 2023, says Leonard Law, senior credit analyst at Singapore-based Lucror Analytics.

Mr Law noted in his memo – published on the Smartkarma platform – that Melco Resorts management had given guidance it expected US$285 million to US$305 million in 2023 capital spending.

That consisted, according to Lucror’s note, of: US$60 million to US$65 million for its gaming monopoly in the Republic of Cyprus, where it is building a resort called City of Dreams Mediterranean with a local partner; US$75 million to US$80 million for Phase 2 of the group’s majority-owned Studio City resort in the Cotai district of Macau; and “US$150 million to US$160 million of maintenance capex” .

Melco Resorts also runs a gaming complex in the Philippines called City of Dreams Manila.

Referring to the upturn in the Macau casino market after the lifting in early January of most of China’s Covid-related precautions, Mr Law stated: “We foresee that the recovery could enable Melco’s overall revenue to reach 70 percent to 80 percent of the financial-year 2019 level, supported by contributions from Studio City Phase 2 and City of Dreams Mediterranean from the second half of 2023.”

For full-year 2019, Melco Resorts reported group-wide revenue of nearly US$4.98 billion

On the casino firm’s fourth-quarter earnings call at the start of March, Lawrence Ho Yau Lung, chairman and chief executive, had said the Cyprus government had given the group an “extension of the deadline to open Dreams Mediterranean, under the terms of our gaming licence, to June 30”.

On the same call, Melco Resorts said that the first stage of the second phase of Studio City would open in the second quarter this year.

Lucror’s Mr Law observed that Melco Resorts’ gross debt in financial year 2022 “climbed 23 percent year-on-year to US$8.1 billion”, while net debt was “up 28 percent at US$6.3 billion”.

He added: “We expect Melco’s debt-to-EBITDA [earnings before interest, taxation, depreciation and amortisation] to improve meaningfully in financial year 2023 to circa 10 times, and recover to nearly financial-year 2019 levels – of 3.4 times – in financial year 2024”.

The institution also said that the refinancing risk for Melco Resorts “has abated”.

“The improved operating conditions would likely allow Melco Resorts to issue new notes and roll over its credit facility,” stated the analyst.