The investment unit of Bank of America says that it expects Melco will resume dividend payments from FY25 onwards. This forecast has brought forward the timing compared to the previous expectation of only in FY26.
According to the latest investment memo, Bank of America Securities expects Melco’s recent financing activities to ‘improve its capital structure and liquidity position, which implies better visibility for dividend payments over time.’
‘Yet, we think it may still take time to see if Melco’s investment efforts to gain market share bear fruit. We lower our FY24-26E earnings forecasts by 1-2 percent to reflect higher financing and promotion costs, only partly offset by slightly higher gross gaming revenue (GGR).’
Macau gaming operator Melco recently announced a series of financing activities, including the issuance of 8-year $750 million senior notes at 7.625 percent and an extension of the maturity year of its revolver credit facility to 2027. Meanwhile, Melco’s subsidiary company Studio City announced a tender to buy up to $100 million of its senior notes due in 2025.
‘Despite the higher coupon rate versus the bank loan rate, the refinancing should significantly improve Melco’s maturity profile.’
Assuming all amounts raised from senior notes will be used for the repayment of credit facilities, the brokerage estimates Melco’s debt due in 2025 at $1.29 billion, down from $2.4 billion as of December last year, representing only 18 percent of its total debt. This is compared to 33 percent as of December 2023.
Meanwhile, Bank of America Securities notes that the amount of unused revolver should increase significantly to $1.7 billion after the repayment of credit facilities, which should be sufficient to cover its debt due in 2025.
‘We think the improved liquidity position provides management with higher flexibility and implies better visibility for dividend payments.’
Market share likely flat QoQ
The brokerage estimates that Melco’s market share remained flat quarter-over-quarter in 1Q24 at 14.6 percent, with EBITDA growth of 2 percent sequentially. Looking ahead, it expects the firm to have a chance for its market share to pick up gradually in 2H24.
The investment bank mentions that during the 4Q23 results briefing, management shared its plan to regain market share, especially in the premium mass segment, by enhancing its customer services. In this context, analysts believe that it would still take time for this to translate into GGR growth.
