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David Bain from Texas Capital Securities launched coverage on Melco Resorts & Entertainment Ltd’s U.S.-listed shares Thursday, floating the idea that selling its City of Dreams Manila stake might bring in close to $600 million. That windfall would dial net leverage down to roughly 3.5 times by late 2026, Bain estimates, as Manila’s casino market finds its footing despite tougher rivalry. A deal like that could knock off about half a turn of debt immediately, letting Melco sharpen focus on higher-return spots. The projection ties into ongoing buyer talks, with the Philippine resort’s stable performance supporting a solid valuation even in a crowded Entertainment City.
Manila Market Holds Steady
While competition has ramped up in Manila, Bain sees signs of stabilization that back a strong sale price. City of Dreams Manila’s mix of VIP and mass gaming keeps it competitive, with revenue streams holding firm amid peers’ expansions. The $600 million figure factors current market multiples on EBITDA and assets, offering Melco a clean break to redeploy capital. Leverage at 3.5 times would appeal to shareholders seeking balance sheet cleanup, especially with Macau driving core profits. Strategic review results could pivot Melco away from Philippine exposure, trading regional growth for financial agility in a dynamic Asian landscape.
Cyprus and Sri Lanka Shine Bright
Bain spotlights City of Dreams Mediterranean in Cyprus for its EBITDA buildup and City of Dreams Sri Lanka, which swung open in August, as smart, low-capital bets paying dividends. Cyprus pulls European crowds with efficient ops, while Sri Lanka eyes South Asia, particularly India, for untapped potential. These ventures lighten Melco’s asset base compared to Macau’s heft, adding geographic spread and revenue diversity. Momentum in Cyprus underscores execution strength, bolstering the overall story as Manila hangs in the balance. Asset-light setups here deliver high returns without the drag of major capex, fitting Melco’s evolution.
Macau Reinvestment to Normalize
Turning to Macau, Bain anticipates current high player reinvestment levels will fade, paving way for product and service-driven rivalry where Melco excels. Unique non-gaming amenities and premium mass strategy sync perfectly with 2025’s record arrivals and China’s uneven rebound, dubbed K-shaped, favoring upscale segments. Gross gaming revenue steadily approaches 2019 highs, with double-digit growth eyed through mid-2026. Junket near-disappearance smooths volatility, slashes related risks, and frees margin on overlooked GGR. Elevated promotions for premium mass, though intense now, tend to settle historically, opening efficiency plays.
Events and Non-Gaming Lift EBITDA
New spending on non-gaming and events should fuel visitation, spread GGR sources, and push absolute EBITDA higher despite mix shifts. Recent analyst chatter on operating cost pressures and lower-margin premium play holds water, but Bain views them as passing. Rational reinvestment returns favor Melco’s premium tilt, aligning with economic divides. Junket purge creates cleaner ops, capturing previously untapped margins. Non-gaming investments diversify beyond tables, drawing longer stays and incremental spending in a visitor boom. As promotions ease, service edge takes over, sustaining gains through product superiority.
Leverage Trim Unlocks Options
Manila sale proceeds would supercharge deleveraging, half a turn alone, to 3.5 times, investor-friendly amid Macau strength. Bain’s coverage starts bullish on Melco’s positioning, blending sale potential with Cyprus or Sri Lanka upside and Macau normalization. Record traffic and K-shaped dynamics play to strengths, with GGR closure to pre-pandemic levels on the horizon. Volatility down, margins up, EBITDA trajectory positive, Melco eyes balanced growth post any Manila pivot.
Source: GGR Asia
