Melco Should Consider Selling Cyprus, Philippines Casinos, Says Analyst

Posted on: January 27, 2025, 02:30h. 

Last updated on: January 27, 2025, 10:34h.

Todd Shriber @etfgodfather Read More
Expertise: Financial, Gaming Business, Mergers and Acquisitions.

Melco Resorts & Entertainment (NASDAQ: MLCO) should consider selling its casino hotels in Cyprus and Manila so it can fund a full acquisition of Studio City International (NYSE: MSC) and focus on its Thailand ambitions, according to an analyst.

Melco Resorts Lawrence Ho Forbes richest
Melco Resorts CEO Lawrence Ho speaks in Macau in 2018. An analyst said the company should consider selling its Cyprus and Manila casino hotels. (Image: Melco Resorts)

In a new report to clients, Vitaly Umansky of Seaport Research Partners noted that while shares of Melco are undervalued, investor sentiment around the stock is dour and that’s unlikely to change over the near term barring dramatic action such as asset sales.

Outside Macau, the Philippines (City of Dreams Manila) continues to generate cash but lacks real growth dynamics due to increasing Manila competition, while Cyprus has been a disappointment partly due [the conflicts in] Russia and Israel,” observed Umansky.

City of Dreams Mediterranean is the operator’s casino hotel in Cyprus. Umansky says that when Melco delivers fourth-quarter results, which is likely to occur next month, Lawrence Ho’s gaming company is likely to tell investors it ceded market share in Macau during the last three months of 2024. That could further strain a stock that’s off 29.20% over the past 12 months and 3.28% year to date.

Melco Should Reallocate Capital, Says Analyst

Melco already owns 55% of Studio City, which is the holding company for a Macau integrated resort of the same name.

“Studio City features 2,493 luxury hotel rooms, diverse food and beverage establishments and approximately 38,500 square meters of complementary retail space,” according to the company’s investor relations website.

Based on Melco’s market capitalization of $2.35 billion and Studio City’s market value of $893.61 million (as of January 2024), the former should be able to purchase the 45% of the latter it doesn’t own without too much financial strain. Umansky noted that should Melco acquire Studio City outright, it set the stage for a merger with Melco International Development. This isn’t the first time Umansky pitched the idea, as he did so about three years ago.

“We remain of the view that Melco would be better off at this stage, with low valuation and high debt, to try to sell its Philippines and Cyprus assets and reallocate the capital,” he said in the new report.

Casino Sales Could Help Melco Focus on Thailand, Too

Should Melco opt to sell its casino resorts in Cyprus and/or Manila, it could help the operator better focus its efforts Thailand. The gaming company recently declared an intent to bid on a gaming license in that country when politicians formally approve casino gaming, which is widely expected to happen.

Umansky said going it alone in Thailand could be a financial hurdle to Melco, but the operator could work through those challenges by working with a partner — a playbook it’s used in other countries.

The operator’s “advantage may lie in its ability to do a lower capital investment deal with local partners [like it has in Sri Lanka), potentially in a secondary market in Thailand,” concludes Umansky.