Melco Resorts Stock Seen as Attractive Despite Disappointing Golden Week

Golden Week was a dud for Macau casino operators, as stricter coronavirus protocols kept many travelers at bay. But some analysts believe Melco Resorts Entertainment (NASDAQ:MLCO) can be a comeback story.

Melco stock has been more than cut in half from its 52-week high and is off 13 percent over the past month. That s as investors dumped Macau gaming equities in the special administrative region (SAR). However, the shares are higher by nearly 11 percent over the past week, indicating slack Golden Week visits were widely expected and likely priced into operators stocks.

The tightened COVID-19 controls in Macao dealt the city’s gaming sector a hard hand during the October Golden Week, with daily average traffic falling 93.7 percent year over year to 1,166 visits, which represents only 0.84 percent of the pre-pandemic 2019 levels,” says Morningstar analyst Jennifer Song. “This, however, was expected, as compulsory quarantine measures are required from Sept. 25, 2021, along with 24-hour negative COVID-19 test results for leaving Macao.”

Melco is the operator of Altria Macau and City of Dreams venues on the Cotai Strip and Manila, among other venues.

While Melco doesn t command Macau market share on par with dominant players Las Vegas Sands (NYSE:LVS) and Galaxy Entertainment, the operator is ideally positioned to benefit from looser travel controls and expansion in neighboring regions.

For example, an efficient ramp-up in traffic on the Hong Kong-Zhuhai-Macao Bridge, the opening of the new Hengqin border, and the Gongbei to Hengqin extension rail would significantly boost Macau s foot traffic, according to Morningstar s Song. The analyst adds nearby Hengqin Island, which is triple the size of Macau, is experiencing rapid growth of its own, and that could be over the long term.

“One of only six concession holders to operate casinos in Macao, Melco Resorts is ideally placed to benefit from this market dynamic, given its portfolio of properties catering to both mass-market and premium-end patrons,” adds Song.

For Melco and rival Macau concessionaires, the near- to medium-term outlooks for their stocks revolves largely around the results of the SAR s consultation period, which could lead to a tighter regulatory grip, and efforts to boost COVID-19 vaccination rates.

Health officials there said the will remain in place until 80 percent of citizens get the jab. Close to half of Macau s population is fully vaccinated, while another quarter has received at least one dose.

Specific to Melco, the operator is reducing exposure to the often-turbulent VIP segment and could unveil some new offerings in the future.

“We expect the ramp-up of Morpheus, with 800 luxury rooms with 40 new mass gaming tables and 40 tables transferred from other properties, and the estimated opening of Studio City phase two in 2023 to be the next profit drivers,” concludes Morningstar s Song.