CICC: Maintaining the Target Price of HK$2 for the “Neutral” Rating of Melco International Development (00200)

The Zhitong Finance App learned that CICC released a research report stating that it maintains the “neutral” rating and target price of HK$2.00, corresponding to the target price of Melco Entertainment (MLCO.US) of $4.00 and a NAV discount rate of -60%, and has 18% downside compared to the current stock price. The bank maintained the EBITDA forecasts for Melco International Development in 2026 and 2027 unchanged. The adjusted EBITDA of the Group's properties for the third quarter of 2026 was US$288 million, which is basically in line with Visible Alpha's agreed forecast of US$289 million. The bank believes that the pressure on the company's performance is mainly due to a decline in the market share of total gaming revenue.

CICC's main views are as follows:

Q3 2026 results meet Visible Alpha's consistent expectations

Melco Entertainment announced results for the third quarter of 2026, with net revenue of US$1,174 million, down 10% year on year and 6% month on month, returning to 82% of the level of the third quarter of 2019. The adjusted EBITDA of Group Properties was US$288 million, down 24% year on year and 5% month on month, and recovered to 69% of the third quarter of 2019, which is basically in line with Visible Alpha's agreed forecast of US$289 million. The bank believes that the pressure on the company's performance is mainly due to the decline in total gaming revenue market share from 14.8% in the second quarter of 2026 to 13.5% in the third quarter.

Industry demand is expected to weaken, and the company will continue to compete rationally

CICC expects demand from the entire industry to weaken in the fourth quarter of 2026. Due to sluggish customer sentiment, spending will weaken in all high-end sectors.

The bank believes that the company performed better than the industry in October 2026 and increased its market share through targeted marketing strategies. Despite weakening demand expectations and a fierce competitive environment, management said the company will continue to lead the industry in rational competition and maintain discipline, which helps maintain profit margins.

Prioritize free cash flow to reduce debt and focus on subsequent capital return arrangements

The bank expects that in the current volatile market environment, the company's free cash flow will be prioritized for debt reduction, and management is committed to reducing the leverage ratio to the target level.

The bank anticipates that the company may further delay the resumption of dividends. The previous guidance was 2027. The bank anticipates that management will prioritize share repurchase opportunities in order to prioritize return on capital before considering regular cash disbursements. Management expects capital expenditure for the fourth quarter of 2026 to be approximately USD 95 million, and capital expenditure for 2027 to be USD 275 million.

Risk Alerts

Demand may be weaker than expected; competition in the industry intensifies and market share may be lost; new properties may be climbing slower than expected.