Senior Credit Analyst, Lucror Analytics

Leonard Law, CFA

Senior Credit Analyst

High Yield Experts

Lucror Analytics

Lucror Analytics is a leading credit and ESG research specialist and a provider of technology solutions for differentiated fixed income strategies. Our roots are in bottom-up fundamental credit analysis with a specialization in high yield corporate credits from Europe, Asia and Latin America. We are one of few research specialists integrating ESG considerations with fundamental credit research through a dedicated ESG platform. Our ESG assessment covers five key criteria: Disclosure, E,S, & G Pillars, Controversies, ESG Impact on Credit and ESG Momentum.

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Credit

<ul>
<li>Melco Resorts and Entertainment's Q4/24 results remained soft, owing to a decline in the EBITDA margin, and despite GGR outperforming that of peers.</li>
<li>In addition, the company's debt reduction and deleveraging continued to lag peers, as FCF generation was constrained by the soft earnings, ongoing share repurchases, as well as capex requirements (including for the development project in Sri Lanka).</li>
</ul>


Melco Resorts and Entertainment's Q4/24 results remained soft, owing to a decline in the EBITDA margin, and despite GGR outperforming that of peers.
In addition, the company's debt reduction and deleveraging continued to lag peers, as FCF generation was constrained by the soft earnings, ongoing share repurchases, as well as capex requirements (including for the development project in Sri Lanka).


Melco Resorts - Earnings Flash - FY 2024 Results - Lucror Analytics

Melco Resorts' (MLCO) Q2/24 results were soft, but in line with expectations. The company’s earnings improved sequentially in Q2, though the pace of its earnings recovery (relative to pre-pandemic levels) and debt reduction have continued to lag peers. During H1/24, MLCO’s net gross debt was down by just 1% from FYE 2023. Hence, the company’s leverage remained weaker than peers, with Net Debt/LTM Adjusted Property EBITDA of 5.1x (vs. 3.9x for Wynn Macau, 2.5x for Sands China and an estimated 2.1x for MGM China). Going forward, we expect MLCO to continue generating small positive FCF and deleverage gradually, with the extent of its FCF generation likely tempered by ongoing share repurchases.

  Melco Resorts' (MLCO) Q2/24 results were soft, but in line with expectations. The company’s earnings improved sequentially in Q2, though the pace of its earnings recovery (relative to pre-pandemic levels) and debt reduction have continued to lag peers.   During H1/24, MLCO’s net gross debt was down by just 1% from FYE 2023. Hence, the company’s leverage remained weaker than peers, with Net Debt/LTM Adjusted Property EBITDA of 5.1x (vs. 3.9x for Wynn Macau, 2.5x for Sands China and an estimated 2.1x for MGM China).   Going forward, we expect MLCO to continue generating small positive FCF and deleverage gradually, with the extent of its FCF generation likely tempered by ongoing share repurchases. 

Melco Resorts - Earnings Flash - H1 FY 2024 Results - Lucror Analytics

<ul>
<li>In today's Morning Views publication we comment on developments of the following high yield issuers: Longfor Group, Melco Resorts, Sands China, Tata Motors</li>
<li>
In the US, February nonfarm payrolls increased to 151 k (160 k e / 125 k revised p), albeit the figure came in slightly below estimates. Moreover, the January number was revised downwards to 125 k (143 k p), with the two-month revision at negative 2 k (+100 k p). The unemployment rate edged up to 4.1% (4.0% e / 4.0% p). The average hourly earnings rose 0.3% m-o-m (0.3% e / 0.4% revised p) and 4.0% y-o-y (4.1% e / 3.9% revised p).
</li>
<li>
Fed Chairman Jerome Powell has reiterated that the US central bank is in no rush to reduce rates. He said: “Despite elevated levels of uncertainty, the US economy continues to be in a good place”, adding that “sentiment readings have not been a good predictor of consumption growth in recent years”.
</li>
</ul>


In today's Morning Views publication we comment on developments of the following high yield issuers: Longfor Group, Melco Resorts, Sands China, Tata Motors

In the US, February nonfarm payrolls increased to 151 k (160 k e / 125 k revised p), albeit the figure came in slightly below estimates. Moreover, the January number was revised downwards to 125 k (143 k p), with the two-month revision at negative 2 k (+100 k p). The unemployment rate edged up to 4.1% (4.0% e / 4.0% p). The average hourly earnings rose 0.3% m-o-m (0.3% e / 0.4% revised p) and 4.0% y-o-y (4.1% e / 3.9% revised p).


Fed Chairman Jerome Powell has reiterated that the US central bank is in no rush to reduce rates. He said: “Despite elevated levels of uncertainty, the US economy continues to be in a good place”, adding that “sentiment readings have not been a good predictor of consumption growth in recent years”.



Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<ul>
<li>Reportedly buyout firms are "vying for" <a href="https://www.smartkarma.com/entities/trend-micro-inc" target="_blank" data-smartkarma-citation="entities:13172:1" rel="noopener">Trend Micro Inc (4704 JP)</a>. The stock went limit up today. Again. The stock is now getting to the expensive side.</li>
<li>
<a href="https://www.smartkarma.com/entities/furukawa-co-ltd" target="_blank" data-smartkarma-citation="entities:19521:1" rel="noopener">Furukawa (5715 JP)</a> has changed their capital allocation policy for the third time. The company is a cyclical, and will likely always suffer the indignity of a cyclical multiple.</li>
<li>While it often pays to follows where the family invests when assessing holdco structures, <a href="https://www.smartkarma.com/entities/melco-international-development-ltd" target="_blank" data-smartkarma-citation="entities:809:1" rel="noopener">Melco International (200 HK)</a>'s NAV discount is simply too narrow for a simple holding company structure.</li>
</ul>


Reportedly buyout firms are "vying for" Trend Micro Inc (4704 JP). The stock went limit up today. Again. The stock is now getting to the expensive side.

Furukawa (5715 JP) has changed their capital allocation policy for the third time. The company is a cyclical, and will likely always suffer the indignity of a cyclical multiple.
While it often pays to follows where the family invests when assessing holdco structures, Melco International (200 HK)'s NAV discount is simply too narrow for a simple holding company structure.


Last Week in Event SPACE: Trend Micro, Furukawa, Melco, Ingenia/Lifestyle

Melco International Development / Event-Driven

<ul>
<li>At an 8% discount to NAV, <a href="https://www.smartkarma.com/entities/melco-international-development-ltd" target="_blank" data-smartkarma-citation="entities:809:1" rel="noopener">Melco International Development (200 HK)</a> is trading too tight for what is a simple holding company structure.</li>
<li>Preceding my comments on Melco are the current setup/unwind tables for Asia-Pacific Holdcos.</li>
<li>These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.</li>
</ul>


At an 8% discount to NAV, Melco International Development (200 HK) is trading too tight for what is a simple holding company structure.
Preceding my comments on Melco are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation &gt;20%.


Hong Kong

Melco Resorts & Entertainment Limited develops, owns, and operates casinos. The Company offers casino gaming, restaurants, bars, and resorts facilities. Melco Resorts & Entertainment serves customers in Asia.

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Melco Resorts & Entertainment (MLCO US)

Melco Resorts - Earnings Flash - FY 2024 Results - Lucror Analytics

Melco Resorts and Entertainment's Q4/24 results remained soft, owing to a decline in the EBITDA margin, and despite GGR outperforming that of...

Lucror Analytics

Melco Resorts - Earnings Flash - H1 FY 2024 Results - Lucror Analytics

Melco Resorts' (MLCO) Q2/24 results were soft, but in line with expectations. The company’s earnings improved sequentially in Q2, though the pace...

Lucror Analytics

Lucror Analytics - Morning Views Asia

In today's Morning Views publication we comment on developments of the following high yield issuers: Longfor Group, Melco Resorts, Sands China,...

Lucror Analytics

Last Week in Event SPACE: Trend Micro, Furukawa, Melco, Ingenia/Lifestyle

It’s Sunday! Pour yourself a coffee, grab a comfortable seat, and sift through a brief summary of insights on various events discussed during the...

David Blennerhassett

StubWorld: Melco Is Trading Too Tight

At an 8% discount to NAV, Melco International Development (200 HK) is trading too tight for what is a simple holding company structure.

David Blennerhassett

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