Melco Resorts could generate positive free cash flow in 2023, analyst says

The upturn in Macau could enable Melco’s revenue to reach 70-80 per cent of its 2019 level.

Macau.- Leonard Law, a senior credit analyst at Lucror Analytics, has said that Melco Resorts and Entertainment should generate a “mildly positive free cash flow” after interest and capital expenditure in the financial year 2023. 

Law noted that the company has predicted capital spending of US$285m to US$305m in 2023. Those costs comprise US$60m to US$65m for its gaming monopoly in the Republic of Cyprus, US$75m to US$80m for Phase 2 of its majority-owned Studio City resort in the Cotai district of Macau and between US$150m and US$160m for maintenance.

Law said the upturn in Macau could enable Melco’s revenue to reach 70-80 per cent of its 2019 level. Meanwhile, the refinancing risk for Melco Resorts “has abated” and improved operating conditions could allow the company to issue new notes and roll over its credit facility.

In 2019, Melco Resorts had nearly US$4.98bn in revenues. For the fourth quarter of 2022, the company reported operating revenue of US$337.1m, around 30 per cent lower than the US$480.6m reported the previous year. The company reported an operating loss of US$199.5m, compared with an operating loss of US$104.4m in the fourth quarter of 2021.

The performance was put down to the travel restrictions in Macau and mainland China due to the Covid-19 pandemic. This led to decreased performance in the rolling chip and mass market table games segments.

According to Law, Melco Resorts’ gross debt increased by 23 per cent on year-on-year terms to US$8.1bn in 2022, while net debt rose by 28 per cent to US$6.3bn. However, Law expects Melco’s debt-to-EBITDA to improve in 2023 and recover to nearly 2019 levels in 2024. 

See also: Macau casino operators to submit 2023 investment plans this month