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研 [Table_Title] Company Report: Melco Resorts & Entertainment (MLCO US) Noah Hudson

究 (86755) 2397Hudson 6684 EquityResearch 公司报告： 新濠博亚 (MLCO US) [email protected]

4 June 2019 [Table_Summary] 1Q19 Results In Line, Maintain "Buy" 2019 年第 1 季度业绩符合预期，维持“买入”

 1Q19 luck-normalized adjusted property EBITDA was US$362 mn [Table_Rank] 公 (-12.0% yoy, -2.3% qoq), in line with market and our expectations. Total Rating: Buy VIP turnover declined sharply (-22.6% yoy, -15.1% qoq), while total mass Maintained 司 GGR recorded below-industry-average growth (+5.0% yoy, +0.9% qoq). 报 评级： 买入 (维持)  We have adjusted upward our forecasts for Melco's 2019-2021 adjusted 告 property EBITDA by 2.5%, 1.9% and 3.4%, respectively. We expect that property enhancements at City of Dreams as well as the roll out of new 6[Table_Price-18m TP 目标价] : US$23.70 Company Report Company Revised from 原目标价: US$26.50 non-gaming attractions at Studio City will increase the Company's

competitiveness and further drive growth. We have adjusted downward ADR price ADR价格: US$18.810 slightly our revenue forecasts as we expect some negative impact to operations while property renovations are being undertaken. However, we expect higher EBITDA margin as Melco's non-VIP segments now contribute Stock performance more than 90% of Melco's luck-adjusted EBITDA (excluding Philippines). We 股价表现 forecast 2019-2021 adjusted property EBITDA of US$1.6 bn, US$1.7 bn and [Table_QuotePic] US$1.8 bn, respectively, representing 7.1% CAGR. 20 % change

 We lower our target price from US$26.50 to US$23.70 on lower sector 10

valuation and maintain our "Buy" investment rating. We believe the 0 证 current sector valuation is (justifiably) pricing in macro-economic risks, (10) 券 告 including trade war tension, as well as the underperformance of Macau's VIP (20)

研 报 sector so far this year. However, we think Melco is relatively well positioned

(30)

as it continues to rely less on the VIP sector and more so on mass and

究 究

premium mass. Our new target price is equivalent to 8.9x forward (40) 报

研 EV/adjusted EBITDA. (50)

告  2019 年第 1 季度标准化赢率下经调整物业 EBITDA 为 3.62 亿美元（同比降 12.0%、环 (60)

券

EquityResearch Report 比降 2.3%），符合市场和我们的预期。贵宾转码数总额大幅下滑（同比降 22.6%、环比 HSI Melco Resorts & Ent. 证 降 15.1%），而中场博彩收入总额录得低于行业平均的增长（同比增 5.0%、环比增 0.9%）。

 我们分别上调新濠博亚 2019 至 2021 年经调整物业 EBITDA 预测 2.5%、1.9%和 3.4%。 [Tab

我们预计新濠天地的物业改善及新濠影汇新型非博彩项目的铺开，能提升公司的竞争力， Change[Table_PriceChange] in ADR Price 1 M 3 M 1 Y

le_I 并进一步推动增长。由于预计物业翻新将会对运营产生一定负面影响，我们略微下调营收 股价变动 1 个月 3 个月 1 年 预测。但我们预计 EBITDA 利润率将会提升，因为非贵宾业务（不含菲律宾地区）目前向 Abs. %

(25.7) (17.1) (41.1) nfo1 绝对变动 % 新濠博亚贡献超过 90%的标准化赢率下经调整物业 EBITDA。我们预计 2019 至 2021 年 Rel. % to NASDAQ Index 博 (15.6) (13.9) (37.5) ] 经调整物业 EBITDA 将分别达到 16 亿美元、17 亿美元和 18 亿美元，年复合增长率 7.1%。 相对纳指变动 % 彩 Avg. ADR price(US$) 21.2 23.1 21.7 平均股价（美元） 行  我们将目标价由 26.50 美元下调为 23.70 美元，以对应下降的行业估值，而投资评级则维 持“买入”。我们认为当前的行业估值中体现了宏观经济风险，包括中美贸易摩擦，以及 Source: Bloomberg, Guotai Junan International. 业

澳门贵宾博彩业务年初至今的疲弱表现。然而，我们认为新濠博亚相对处于有利位置，因 Gaming Sector 为其对贵宾业务的依赖持续减少，而对中场及高端中场的侧重则越来越多。我们新的目标

价相当于 8.9 倍预测经调整 EV/EBITDA。

[Tab le_I [Table_

Year End Turnover Net Profit Earnings/ADR Earnings/ADR PER BV/ADR PBR DP ADR Yield ROE nfo2 年结Profit ] 收入 股东净利 每份 ADR 净利 每份 ADR 净利变动 市盈率 每份 ADR 净资产 市净率 每份 ADR 股 股息率 净资产收益率 12/31 (US$ m) (US$ m) (US$) (△ %) (x) (US$) (x) (US$)息 (%) (%) ] 2017A 5,285 347 0.709 103.8 26.5 5.902 3.2 1.681 8.9 9.7 新 2018A 5,159 352 0.727 2.5 25.9 4.398 4.3 0.560 3.0 11.6 濠中 2019F 5,555 501 1.088 49.7 17.3 3.783 5.0 0.738 3.9 19.0 博 5,945 607 1.320 21.3 14.2 4.096 4.6 0.792 4.2 22.6 外 2020F 2021F 6,373 715 1.554 17.7 12.1 4.665 4.0 0.777 4.1 23.4 亚 运 [Table_BaseData]ADR in issue (m) 总 ADR 数 (m) 467.0 Major shareholder 大股东 Melco Intl. Development Ltd. 51.3% 输 Market cap. (US$ m) 市值 (US$ m) 8,784.6 Free float (%) 自由流通比率 (%) 37.5 3 month average vol. 3 个月平均成交股数 (‘000) 5,494.7 FY19 Net gearing (%) FY19 净负债/股东资金 (%) 235.7 52 Weeks high/low (US$) 52 周高/低 (US$) 51.910 / 25.000 FY19 Est. NAV (US$) FY19 每 ADR 估值（美元） 29.6

Source: the Company, Guotai Junan International. Melco Resorts & Entertainment (MLCOUS) MelcoResorts Entertainment &

See the last page for disclaimer Page 1 of 11

[Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

1Q19 RESULTS

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Melco Resorts & Entertainment's ("Melco" or the "Company") 1Q19 VIP-luck-normalized adjusted property EBITDA

was US$362 million (-12.0% yoy, -2.3% qoq), in line with Bloomberg consensus estimate and our forecast. Melco's

VIP-luck-normalized adjusted property EBITDA was 1.1% above our forecast. Favorable VIP luck (high VIP win rate) boosted adjusted EBITDA by around US$46 million, resulting in adjusted property EBITDA of US$407 million (+1.2% yoy, -4.3% qoq), which was 13.7% above our last forecast. Adjusted property EBITDA margin was 30.1%, down 0.6 ppt yoy and 0.8 ppt qoq. Melco's non-VIP segments now contribute more than 90% of Melco's luck-adjusted EBITDA (excluding the Philippines). This 4June 2019 highlights the importance of mass gaming and non-gaming segments in driving group-wide EBITDA and EBITDA margin.

Shareholders’ net income decreased 25.1% yoy and 8.3% qoq to US$117 mn in 1Q19, negatively impacted by bad debt provision. Net revenue totaled US$1,362 million, up 3.7% yoy but down 2.5% qoq. Net income was negatively affected by bad debt provision of US$11 mn during 1Q19, as opposed to a bad debt reversal of US$3 mn in 1Q18. During 1Q19, earnings per ADR decreased by 20.2% yoy to US$0.255.

Table-1: Melco's Financial Results US$ mn (unless indicated otherwise) 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

] 2 r a M t h g i R _ e l b a T [ Gaming revenue 1,154 1,070 1,030 1,211 1,177 (2.8%) 2.0%

Room revenue 68 68 86 90 84 (6.1%) 24.4%

Entertainment, retail, F&B & other revenue 92 91 104 96 101 5.1% 10.4%

Total Net Revenue 1,313 1,229 1,220 1,396 1,362 (2.5%) 3.7%

Shareholders' net income 157 57 10 128 117 (8.3%) (25.1%)

Earnings per ADR, basic (US$) 0.320 0.117 0.020 0.274 0.255 (7.1%) (20.2%)

Earnings per ADR, diluted (US$) 0.317 0.115 0.020 0.273 0.254 (7.1%) (19.8%) (MLCO US)

Adjusted Property EBITDA

City of Dreams 208 172 147 230 229 (0.5%) 9.9% 新濠博亚 Altira Macau 18 18 (1) 20 15 (24.3%) (15.1%)

Mocha Clubs 7 5 5 5 6 27.7% (13.5%)

City of Dreams Manila 59 87 55 68 61 (10.9%) 2.9%

Studio City 110 73 89 103 96 (6.1%) (12.4%)

Total Adjusted Property EBITDA 402 356 295 425 407 (4.3%) 1.2%

Adjusted Property EBITDA Margins

City of Dreams 32.5% 29.7% 24.5% 31.7% 32.0% 0.3 ppt (0.4) ppt

Altira Macau 15.0% 14.9% (1.1%) 14.7% 11.5% (3.2) ppt (3.5) ppt

Mocha Clubs 22.8% 18.6% 16.1% 17.7% 19.3% 1.6 ppt (3.5) ppt Melco Resorts & Entertainment

City of Dreams Manila 41.4% 50.2% 39.0% 43.8% 42.5% (1.3) ppt 1.1 ppt

Studio City 29.9% 23.3% 25.9% 30.1% 29.2% (1.0) ppt (0.7) ppt

Total Adjusted Property EBITDA Margin 30.6% 28.9% 24.2% 30.4% 29.9% (0.6) ppt (0.7) ppt

Source: the Company, Guotai Junan International. Note: Mass market share includes gaming tables and slot machines. Adjusted EBITDA is earnings before interest, taxes, depreciation, amortization, pre-opening costs, development costs, property charges and other, share-based compensation, payments to the Philippine parties under the cooperative arrangement (the “Philippine Parties”), land rent to Belle Corporation and other non-operating income and expenses.

Melco’s 1Q19 total VIP turnover decreased 22.6% yoy (-15.1% qoq) to US$20.2 bn, led by a sharp decline at Studio City, where the Company plans to close the VIP business by January 2020. Excluding the Philippines, Melco’s total VIP turnover plummeted to US$17.9 billion (-23.2% yoy, -16.4% qoq), worse than the Macau sector VIP gross gaming revenue ("GGR") decline (-13.4% yoy, -11.4% qoq). The decline in Melco's total VIP GGR was mainly led by Studio City, whose VIP turnover decreased by nearly 59.1% yoy. But thanks to a higher-than-normal company-wide VIP win rate of 3.50% (+0.6 ppt yoy, +0.2 ppt qoq), which was beyond the expected range of 3.00% to 3.30%, Melco’s total VIP win declined less significantly (-8.0% yoy,

-11.2% qoq) to US$700 million.

Report

Melco's mass segment also underperformed in 1Q19, with total mass GGR of US$889 (+5.0% yoy, +0.9% qoq) and a

slowdown in Melco's premium mass business. Excluding the Philippines, mass market (tables & slots) GGR was US$780 Company million (+5.9% yoy, +1.4% qoq), underperforming Macau’s 16.1% yoy and 5.9% qoq growth in mass GGR. Melco's total mass

See the last page for disclaimer Page 2 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

table drop, excluding the Philippines, increased to US$23.1 billion (+7.5% yoy, +2.1% qoq), while overall mass table hold rate

decreased to 32.3% (-0.2 ppt yoy, -0.6 ppt qoq). Also worth noting is that Melco’s management] 1 r a indicatedM t h g thati R there_ e wasl b a a T [

slowdown in premium mass growth during 1Q19. This was despite expectations that Morhpeus, which opened in June 2018

and is still ramping up, would accelerate growth in the upper end of the mass business. In comparison, competitors Sands

China (01928 HK) and MGM China (02282 HK), the top performers in Macau’s mass market this quarter, reported strong growth in their premium mass segments.

4June 2019 Melco’s overall market share was about 15.4% (+0.4 ppt yoy, -0.1 ppt qoq) in 1Q19. Melco's VIP market share increased by 1.2 ppt yoy and 0.1 ppt qoq to 14.0% thanks to higher-than-normal VIP win rates. Melco’s mass market share declined by 1.1 ppt yoy and 0.7 ppt qoq to 16.7%, as the Company underperformed the industry in terms of mass market growth.

Figure-1: Melco Resorts Market Share, Quarterly Figure-2: Studio City Market Share, Quarterly

Total VIP Mass (Tables & Slots) Total VIP Mass (Tables & Slots) 7% 20% 6.0% 17.7% 17.1% 17.4% 16.7% 16.6% 6% 5.5% 5.7% 5.6% 5.6% 15.5% 15.0% 14.4% 14.2% 15.4% 15% 5% 4.5% 4.2% 4.3% 4.0% 3.8% 14.0% ] 2 r a M t h g i R _ e l b a T [ 13.9% 4% 12.8% 12.6% 10% 11.8% 3% 3.4% 3.2% 3.2% 2% 2.6% 5% 2.0% 1%

0% 0% 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19

(MLCO US)

Source: the Company, Gaming Inspection and Coordination Bureau Macao Source: the Company, Gaming Inspection and Coordination Bureau Macao SAR. SAR.

新濠博亚 Studio City

Studio City’s GGR in 1Q19 decreased 17.9% yoy and 7.8% qoq to US$349 million, as its VIP segment continued to shrink. Melco plans to relocate all of Studio City’s VIP tables by January 2020 to optimize company-wide table yield. The property’s VIP turnover plummeted 59.1% yoy and 22.9% qoq to US$2.7 billion. VIP gross win plunged 50.0% yoy and 33.0% qoq to US$89 million, reflecting a VIP win rate of 3.3% (+0.6 ppt yoy, -0.5 ppt qoq). The property’s mass GGR (tables & slots) totaled US$260 million, up 5.1% yoy and 5.8% qoq, underperforming the sector. Mass table win was US$242 million (+6.9%

yoy, +8.5% qoq), corresponding to a hold of 28.4% (+1.0 ppt yoy, +1.4 ppt qoq). Slot machine win was US$18 million (-14.0% Melco Resorts & Entertainment yoy, -19.9% qoq), reflecting a slot win rate of 3.3% (-0.4 ppt yoy, -0.3 ppt qoq).

Table-2: Studio City Operating Results US$ Mn 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

Rolling Chip Volume (VIP turnover) 6,600 6,100 5,100 3,500 2,700 (22.9%) (59.1%) Rolling Chip Win % 2.7 2.7 3.1 3.8 3.3 (0.5) ppt 0.6 ppt VIP Win 178.2 164.7 158.1 133.0 89.1 (33.0%) (50.0%)

Mass Table Drop 825 814 808 825 851 3.1% 3.2% Non-Rolling Chip Table Win Rate (%) 27.4 24.5 27.2 27.0 28.4 1.40 ppt 1.0 ppt Mass Market Table Win 226 200 220 223 242 8.5% 6.9%

Slot Machine Handle 582 615 642 642 561 (12.7%) (3.6%)

Slot Machine Win % 3.7 3.4 2.9 3.6 3.3 (0.30) ppt (0.4) ppt Report Slot Machine Win 22 21 19 23 18 (19.9%) (14.0%)

Casino Gross Revenue 426 385 396 379 349 (7.8%) (17.9%) Company

Hotel Revenue 20 19 20 20 19 (5.7%) (5.4%) See the last page for disclaimer Page 3 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Other Revenue 28 25 30 26 32 21.3% 13.3% Commissions & Discounts (106) (115) (101) (85) (70) (17.4%) (33.8%)

] 1 r a M t h g i R _ e l b a T [

Total Property Revenue 368 314 345 341 330 (3.0%) (10.3%)

Occupancy % 100 100 100 100 100 0.0 ppt 0.0 ppt

VIP market share 3.4% 3.2% 3.2% 2.6% 2.0% (0.6) ppt (1.4) ppt Mass market share 6.0% 5.5% 5.7% 5.6% 5.6% (0.0) ppt (0.4) ppt Total market share 4.5% 4.2% 4.3% 4.0% 3.8% (0.2) ppt (0.7) ppt 4June 2019 Source: the Company, Guotai Junan International.

City of Dreams Macau

City of Dreams failed to carry forward double-digit percentage growth in GGR which it achieved last quarter. The property’s GGR in 1Q19 increased 5.0% yoy (but decreased 4.1% qoq) to US$801 million. GGR benefited from favorable VIP luck during the quarter. If normalizing VIP luck, the property’s GGR would have been down 0.5% yoy and 6.5% qoq to US$776 million.

The property’s VIP turnover in 1Q19 decreased 8.1% yoy and 10.5% qoq to US$10.2 billion, better than the sector’s

] 2 r a M t h g i R _ e l b a T [

decline in VIP GGR during the quarter. VIP win rate was favorable at 3.40% (+0.4 ppt yoy, +0.2 ppt qoq), and VIP win was US$347 million (+4.1% yoy, -4.9% qoq).

The property’s Mass segment (tables & slots) GGR in 1Q19 increased 5.7% yoy but decreased 3.4% qoq to US$454 million, underperforming the sector’s growth in mass market GGR during the quarter. Mass table drop increased to

US$1.3 billion (+11.4% yoy, +0.7% qoq), while mass table hold rate decreased to 31.5% (-0.6 ppt yoy, -1.5 ppt qoq). However, (MLCO US)

Melco’s management pointed out during their earnings call that they saw a slowdown in premium mass growth, which we think is especially disappointing since Morpheus was still ramping up in 1Q19 and was expected to give a boost to the premium

mass segment. Sands China and MGM China, the top mass performers for the quarter, both reported strong growth in premium 新濠博亚 mass.

Table-3: City of Dreams Macau Operating Results US$ Mn 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

Rolling Chip Volume (VIP turnover) 11,100 10,500 12,300 11,400 10,200 (10.5%) (8.1%) Rolling Chip Win % 3.0 2.9 2.4 3.2 3.4 0.2 ppt 0.4 ppt VIP Win 333 305 295 365 347 (4.9%) 4.1%

Melco Resorts & Entertainment

Mass Table Drop 1,182 1,182 1,338 1,308 1,318 0.7% 11.5% Non-Rolling Chip Table Win % 32.1 28.4 27.8 33.0 31.5 (1.50) ppt (0.60) ppt Mass Market Table Win 379 336 372 432 415 (3.8%) 9.4%

Slot Machine Handle 1,001 1,117 1,122 1,052 980 (6.8%) (2.0%) Slot Machine Win % 5.0 5.1 4.3 3.7 4.0 0.30 ppt (1.04) ppt Slot Machine Win 50 57 48 39 39 0.8% (22.2%)

Casino Gross Revenue 763 697 715 835 801 (4.1%) 5.0%

Hotel Revenue 25 24 26 27 25 (9.4%) (1.6%) Other Revenue 48 53 73 72 72 (0.9%) 49.9% Commissions & Discounts -195 -196 -213 -210 -184 (12.5%) (5.7%)

Total Property Revenue 641 578 601 725 713 (1.5%) 11.4%

Occupancy % 98 97 96 97 97 0.00 ppt (1.00) ppt Report

VIP Market Share 6.3% 6.0% 6.0% 7.2% 7.8% 0.5 ppt 1.5 ppt

Mass Market Share 10.4% 9.7% 10.1% 10.7% 9.7% (0.9) ppt (0.6) ppt Company Total Market Share 8.1% 7.6% 7.8% 8.8% 8.8% (0.1) ppt 0.7 ppt Source: the Company, Guotai Junan International

See the last page for disclaimer Page 4 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

City of Dreams Manila

] 1 r a M t h g i R _ e l b a T [

City of Dreams Manila’s 1Q19 casino revenue decreased 4.7% yoy and 8.8% qoq to US$183 mn. City of Dreams Manila's

luck-adjusted EBITDA declined 9% yoy. With rising competition in and around entertainment city, we remain more cautious with our outlook for the rest of 2019. VIP turnover at the property was US$2.3 billion (-17.9% yoy, +1.5% qoq). VIP win was US$74 million (-9.4% yoy, -17.1% qoq), reflecting a VIP win rate of 3.20% (+0.3 ppt yoy, -0.5 ppt qoq). Mass market (tables & slots)

GGR totaled US$109 million, down 1.2% yoy and 2.2% qoq. Mass table win was US$56 million (-11.3% yoy, -9.0% qoq), 4June 2019 reflecting a hold at 30.6% (-3.2 ppt yoy, -0.8 ppt qoq). Slot machine win was US$53 million (+12.5% yoy, +6.4% qoq), corresponding to a slot win rate at 5.8% (+0.1 ppt yoy, +0.5 ppt qoq).

Table-4: City of Dreams Manila Operating Results US$ Mn 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

Rolling Chip Volume (VIP turnover) 2,800 3,000 3,000 2,400 2,300 (4.2%) (17.9%) Rolling Chip Win % 2.9 3.7 2.7 3.7 3.2 (0.50) ppt 0.30 ppt VIP Win 81 111 81 89 74 (17.1%) (9.4%)

Mass Table Drop 188 197 205 197 184 (6.6%) (2.1%)

] 2 r a M t h g i R _ e l b a T [ Non-Rolling Chip Table Win % 33.8 29.4 32.4 31.4 30.6 (0.80) ppt (3.20) ppt Mass Market Table Win 64 58 66 62 56 (9.0%) (11.3%)

Slot Machine Handle 821 856 935 934 908 (2.8%) 10.5% Slot Machine Win % 5.7 5.9 5.3 5.3 5.8 0.50 ppt 0.10 ppt Slot Machine Win 47 50 50 49 53 6.4% 12.5%

(MLCO US) Casino Gross Revenue 192 219 197 200 183 (8.8%) (4.7%)

Hotel Revenue 13 13 13 14 13 (0.9%) 2.1% 新濠博亚 Other Revenue 16 16 16 16 15 (4.3%) (7.8%) Commissions & Discounts (79) (75) (84) (74) (69) (7.5%) (12.9%) Total Property Revenue 142 174 142 155 142 (8.2%) 0.1%

Occupancy % 98 98 98 98 98 0.0 ppt 0.0 ppt Source: the Company, Guotai Junan International.

Figure-3: City of Dreams Market Share, Quarterly Figure-4: Altira Macau Market Share, Quarterly Melco Resorts & Entertainment Total VIP Mass (Tables & Slots) Total VIP Mass (Tables & Slots)

12% 10.7% 5% 10.4% 10.1% 4.3% 9.7% 9.7% 4.0% 10% 8.8% 4% 8.1% 8.8% 7.6% 7.8% 3.2% 3.4% 8% 2.7% 3% 7.8% 2.4% 2.5% 6% 7.2% 2.1% 2.2% 6.3% 6.0% 6.0% 2% 1.7% 4% 0.7% 1% 0.7% 0.7% 0.6% 0.6% 2%

0% 0% 1Q18 2Q18 3Q18 4Q18 1Q19 1Q18 2Q18 3Q18 4Q18 1Q19

Source: the Company, Gaming Inspection and Coordination Bureau Macao SAR. Source: the Company, Gaming Inspection and Coordination Bureau Macao SAR. Report

Company

See the last page for disclaimer Page 5 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Altira Macau

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Altira played lucky in 1Q19 and its GGR was US$224 million, (+14.2% yoy, -1.6% qoq), outperforming Macau’s GGR

growth during the quarter (-0.5% yoy, -3.3% qoq). VIP turnover was US$5.0 billion (-10.7% yoy, -23.1% qoq) and VIP win rate was 3.80% (+0.8 ppt yoy, +0.7 ppt qoq). If VIP luck is normalized, the property’s GGR would have been US$192 million, down 10.7% yoy and 23.1% qoq. Mass market (table & slots) GGR totaled US$34 million, an increase of 20.5% yoy and 30.3%

qoq, benefiting from a much higher mass table hold at 22.4% (+3.0 ppt yoy, +2.7 ppt qoq). Slot Machine win was US$3 million 4June 2019 (+116.7% yoy, +143.1% qoq), corresponding to a slot win rate at 5.1% (-0.3 ppt yoy, +0.8 ppt qoq).

Table-5: Altira Macau Operating Results US$ Mn 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

Rolling Chip Volume (VIP turnover) 5,600 4,800 5,500 6,500 5,000 (23.1%) (10.7%) Rolling Chip Win % 3.0 3.6 2.4 3.1 3.8 0.70 ppt 0.80 ppt VIP Win 168 173 132 202 190 (5.7%) 13.1%

Mass Table Drop 139 132 131 127 139 9.5% (0.1%) Non-Rolling Chip Table Win % 19.4 19.7 18.2 19.7 22.4 2.70 ppt 3.00 ppt

] 2 r a M t h g i R _ e l b a T [

Mass Market Table Win 27 26 24 25 31 24.5% 15.4%

Slot Machine Handle 26 30 34 30 61 103.0% 133.5%

Slot Machine Win % 5.4 6.3 5.6 4.3 5.1 0.80 ppt (0.30) ppt

Slot Machine Win 1.4 1.9 1.9 1.3 3.1 143.1% 116.7%

Casino Gross Revenue 196 201 158 228 224 (1.6%) 14.2% (MLCO US)

Hotel Revenue 4 4 4 4 4 (7.4%) (9.3%) Other Revenue 3 3 3 3 3 (3.5%) 13.5% Commissions & Discounts (83) (84) (74) (97) (98) 0.7% 18.4% 新濠博亚 Total Property Revenue 120 123 90 138 133 (3.3%) 10.5%

Occupancy % 99 99 99 100 99 (1.00) ppt 0.00 ppt

VIP Market Share 3.2% 3.4% 2.7% 4.0% 4.3% 0.3 ppt 1.1 ppt Mass Market Share 0.7% 0.7% 0.6% 0.6% 0.7% 0.1 ppt 0.0 ppt Total market share 2.1% 2.2% 1.7% 2.4% 2.5% 0.0 ppt 0.4 ppt Source: the Company, Guotai Junan International.

Melco Resorts & Entertainment

Mocha Clubs

Mocha Clubs’ 1Q19 mass GGR increased 2.3% yoy and 17.4% qoq to US$31 million. Slot machine win, the property’s only gaming revenue, increased 2.3% yoy and 17.4% qoq to US$31 mn. Slot machine win rate was 4.7%, compared with the 4.5% in both 1Q18 and 4Q18.

Table-6: Mocha Clubs Operating Results US$ Mn 1Q18 2Q18 3Q18 4Q18 1Q19 qoq yoy (% or ppt) (% or ppt)

Slot machine handle 655 619 617 594 664 11.9% 1.5% Slot machine win % 4.6 4.5 4.7 4.5 4.7 0.20 ppt 0.10 ppt

Slot Machine Win 30 28 29 27 31 17.4% 2.3%

Report

Adjusted EBITDA 6.9 5.2 4.6 4.7 6.0 27.7% (13.0%) Mass market share 0.7% 0.7% 0.7% 0.6% 0.7% 0.1 ppt (0.1) ppt

Source: the Company, Guotai Junan International.

Company

See the last page for disclaimer Page 6 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Outlook

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Melco to acquire 19.99% stake in Crown Resorts. On May 30, 2019, Melco executed a purchase agreement whereby one of

its subsidiaries will acquire 135.35 million shares, equivalent to ownership interest of 19.99%, of Crown Resorts Limited

(CWNAU, "Crown") for a price of AUD13.00 per Crown share. Crown's 30 May closing price was AUD12.92 per share. The transaction will close in two equal tranches on June 6, 2019 and on or prior to September 30, 2019. Melco intends to pursue

board representation on Crown's board of directors and will also welcome the opportunity to further increase its ownership in 4June 2019 Crown. The investment in Crown will be positive for Melco, in our view, as it will increase Melco's net income and also create collaboration opportunities between the two companies. Crown had net income of AUD559 (US$386) million in 2018 and Bloomberg consensus forecast currently expects Crown's net income to be AUD337 (US$233) million in 2019. Crown is one of Australia's largest operators of integrated resorts with resorts in Perth and Melbourne. Crown also owns and operates the Crown Aspinalls, a casino in London, and engages in wagering and online social gaming activities.

Melco will be making property enhancements at City of Dreams over the next 12 months. Melco's management has identified over US$50 million of targeted enhancement CapEx to upgrade the gaming areas and the non-gaming attractions at its City of Dreams property over the next 12 months. These improvements will be aimed at maintaining the longer-term competitiveness of the results, although we expect some disruption to operations while the renovation works are being done.

] 2 r a M t h g i R _ e l b a T [

At Studio City, Melco will soon open its 50,000 sq.ft. "Legend Heroes" virtual reality park and its "Flip Out" trampoline park. Although no specific opening date has been disclosed, we expect these new non-gaming entertainment attractions to further elevate the mass gaming and non-gaming attractions. Melo will also soon commence further expansion of Studio City, which is expected to have two hotel towers, a water park, Cineplex and additional gaming space. We also see additional potential upside since the Macau government is encouraging casino operators to develop more non-gaming attractions.

Melco's new non-gaming facilities may 1) increase the chance that Melco might be allocated more gaming tables, and; 2) put (MLCO US) Melco in a more positive light regarding a bid for a new gaming concession (all six Macau gaming operator's current gaming concessions and sub-concessions expire in 2022).

新濠博亚

Forecast Revisions

We adjust upward our forecasts for Melco's 2019-2021 adjusted property EBITDA by 2.5%, 1.9% and 3.4%, respectively. Melco's 1Q19 results were in line with our expectations. We adjust downward slightly our revenue forecasts as we expect some negative impact to operations while property renovations are being undertaken at City of Dreams. However, we expect higher EBITDA margin as Melco's non-VIP segments now contribute more than 90% of Melco's luck-adjusted EBITDA (excluding

Philippines). This highlights the importance of mass gaming and non-gaming segments in driving Company-wide EBITDA and Melco Resorts & Entertainment EBITDA margin. We forecast 2019-2021 total net revenue of US$5.555 billion, US$5.945 billion and US$6.373 billion, respectively, representing growth of 7.7%, 7.0% and 7.2%. We forecast 2019-2021 adjusted property EBITDA of US$1.551 billion, US$1.730 billion and US$1.816 billion, respectively, representing growth of 5.0%, 11.5% and 5.0%, respectively. We forecast 2019-2021 net profit of US$500 million, US$607 million and US$715 million, respectively, equivalent to 26.7% CAGR. We forecast 2019-2021 fully diluted earnings per ADS ("EPADS") of US$1.083, US$1.314 and US$1.547, respectively, equivalent to 29.0% CAGR.

Table-7: Melco Resorts & Entertainment Forecast Revisions US$ mn Old New % Change

(Except EPS) 2019F 2020F 2021F 2019F 2020F 2021F 2019F 2020F 2021F

Total Net Revenue 5,775 6,174 6,457 5,555 5,945 6,373 (3.8%) (3.7%) (1.3%)

Operating Profit 872 952 1,035 794 868 965 (9.0%) (8.7%) (6.8%)

Operating Profit Margin 15.1% 15.4% 16.0% 14.3% 14.6% 15.1% (0.8) ppt (0.8) ppt (0.9) ppt

Adjusted Property EBITDA 1,513 1,698 1,756 1,551 1,730 1,816 2.5% 1.9% 3.4%

Adj. Property EBITDA Margin 26.2% 27.5% 27.2% 27.9% 29.1% 28.5% 1.7 ppt 1.6 ppt 1.3 ppt

Report Net Profit 600 739 870 500 607 715 (16.6%) (17.8%) (17.9%)

Net Profit Margin 10.4% 12.0% 13.5% 9.0% 10.2% 11.2% (1.4) ppt (1.8) ppt (2.3) ppt

EPADS, Basic (US$) 1.287 1.584 1.866 1.088 1.320 1.554 (15.4%) (16.7%) (16.7%) Company

EPADS, Diluted (US$) 1.282 1.578 1.860 1.083 1.314 1.547 (15.5%) (16.7%) (16.8%)

Source: Guotai Junan International. See the last page for disclaimer Page 7 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

VALUATION

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We lower our target price from US$26.50 to US$23.70 on lower sector valuation and maintain our "Buy" investment

rating. When we published our last Melco Company Report on 27 Feb., the Macau gaming sector was trading at market-cap weighted average forward EV/adjusted EBITDA of 13.4x, compared with 11.2x currently. We believe the current sector valuation is (justifiably) pricing in macroeconomic risks, including trade war tension, as well as the underperformance of

Macau's VIP sector so far this year. However, we think Melco is relatively well positioned as it continues to rely less on the VIP 4June 2019 sector and more so on the mass and premium mass segments. Our new target price is equivalent to 8.9x forward EV/adjusted EBITDA and reflects 26.0% upside potential. Our target price is equivalent to 9.1x/ 8.0x 2019/ 2020 EV/adjusted EBITDA and 21.9x/ 18.0x 2019/ 2020 PER and is a 19.9% discount to our DCF derived NAV per share of US$29.59.

Table-8: Gaming Sector Peers Comparison Company Stock Currency Price M-Cap PE EV/ Adjusted EBITDA PB ROE

Code Billion Hist Avg. Hist Avg. 19F 19F

(HK$) Fwd* Fwd* 19F 20F Fwd* Fwd* 19F 20F (%)

Macau Operators

Galaxy Entertain 00027 HK HKD 45.900 198.8 20.6 14.8 14.8 13.9 14.5 11.2 11.2 10.1 2.8 19.8 Melco Reso-Adr MLCO US USD 18.810 68.9 21.7 18.2 18.9 15.8 9.5 7.9 7.5 6.7 3.6 17.5

Mgm China 02282 HK HKD 11.340 43.1 27.2 16.7 16.7 12.9 16.3] 2 9.5r a M 9.5t h 8.0g i R 4.0_ e 24.1l b a T [

Sands China Ltd 01928 HK HKD 33.200 268.4 19.5 15.7 15.7 14.1 15.5 12.2 12.2 11.3 7.5 47.5 Sjm Holdings Ltd 00880 HK HKD 8.470 48.0 20.6 18.8 18.8 17.1 13.6 13.9 13.9 10.2 1.7 8.8 Wynn Macau Ltd 01128 HK HKD 15.160 78.8 20.5 13.0 13.0 11.6 12.0 9.8 9.8 9.0 53.0 398.0 Simple Average 21.4 16.6 16.7 14.1 12.7 10.2 10.2 8.8 10.5 74.5

Weighted Average 20.7 15.7 15.7 14.1 14.2 11.2 11.1 10.0 10.3 71.8

USA Operators

Las Vegas Sands LVS US USD 52.940 320.8 19.4 15.9 15.8 14.9 12.3 9.8 9.9 9.5 6.9 42.8 (MLCO US)

Mgm Resorts Inte MGM US USD 23.870 100.5 22.1 18.1 22.3 14.2 10.7 9.6 9.6 8.5 1.8 7.6

Penn Natl Gaming PENN US USD 17.690 16.2 18.4 10.7 12.3 8.5 7.0 4.8 6.2 5.8 1.5 17.8

Wynn Resorts Ltd WYNN US USD 103.570 87.4 21.1 15.1 16.2 12.8 11.9 9.5 9.8 8.0 5.5 33.0 新濠博亚

Simple Average 20.3 15.0 16.6 12.6 10.5 8.4 8.9 8.0 3.9 25.3

Weighted Average 20.2 16.0 17.0 14.2 11.7 9.6 9.7 9.0 5.5 33.6

Other Operators

Genting Singapor GENS SP SGD 0.870 60.1 18.6 14.7 14.7 14.3 9.2 6.0 6.0 5.8 1.3 9.0

Genting Malaysia GENM MK MYR 3.170 33.6 17.1 14.7 14.7 13.5 10.1 7.8 7.8 7.0 1.0 6.4

Bloomberry Res BLOOM PM PHP 11.960 20.0 16.8 16.9 16.9 14.5 9.4 9.7 9.7 8.7 3.1 19.6

Belle Corp BEL PM PHP 2.340 3.5 12.4 7.1 7.1 6.2 13.0 8.0 8.0 6.0 0.8 11.8

Simple Average 16.2 13.4 13.4 12.1 10.4 7.9 7.9 6.9 1.5 11.7

Weighted Average 17.7 14.9 14.9 13.9 9.6 7.2 7.2 6.7 1.5 10.1 Melco Resorts & Entertainment Source: Bloomberg, Guotai Junan International. Note*: "Fwd" valuations are based on the next forward 12 months earnings forecasts, which is compiled by using the most frequent available periodicity, which for Companies under our coverage in this report is the next four quarters; for companies not under our coverage, the Bloomberg forward valuations are based on next four quarters, next two semi-annuals or next fiscal year.

Table-9: Melco Resorts & Entertainment DCF Valuation

Risk Free Rate 1.81% Sum of PV FCFF (US$ mn) 12,164 Market Return 11.15% + PV Terminal Value (US$ mn) 5,436 Market Risk Premium 9.34% Enterprise Value (US$ mn) 17,600 Adj. Beta 1.2 - Net Debt/(cash) (US$ mn) 3,108 Equity Discount Rate 13.02% Total NAV (US$ mn) 14,493 ADR Outstanding (mn) 489.8 After Tax Cost of Debt 6.7% NAV per ADR (US$) 29.59

D/(D+E) 60.0%

E/(D+E) 40.0%

WACC 9.2% Report

Long term growth rate 3.0%

Source: Bloomberg, the Company, Guotai Junan International. Company

See the last page for disclaimer Page 8 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Table-10: Melco Resorts & Entertainment Valuation and Target Price Based Multiples

] 1 r a M t h g i R _ e l b a T [ FY18A Next 4 Quarters FY19F FY20F FY21F

Target Price Based EV / Adjusted Property EBITDA

Target Price (US$) 23.70

Shares Outstanding, Period End, Fully Diluted (mn) 487 462 462 462 462 TP Based Market Cap (US$ mn) 11,541 10,952 10,952 10,952 10,952

+ Period End Minority Interest (US$ mn) 0 0 0 0 0 4June 2019 + Period End Borrowings (US$ mn) 4,349 4,207 4,231 4,137 3,717 - Period End Cash & Equivalents (US$ mn) 1,437 1,133 1,073 1,313 1,321 Year End Enterprise Value (US$ mn) 14,454 14,027 14,110 13,776 13,347 Adjusted Property EBITDA (US$ mn) 1,478 1,575 1,551 1,730 1,816 TP Based EV/Adjusted Property EBITDA 9.8 8.9 9.1 8.0 7.3

Target Price Based PER & PEG

EPS (US$), Diluted 0.721 1.141 1.083 1.314 1.547

Target Price Based PER 32.9 20.8 21.9 18.0 15.3

Source: the Company, Guotai Junan International.

] 2 r a M t h g i R _ e l b a T [

(MLCO US)

新濠博亚 Melco Resorts & Entertainment

Report

Company

See the last page for disclaimer Page 9 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Financial Statements and Ratios

[Table_IncomeStatement] [Table_BalanceSheet] ] 1 r a M t h g i R _ e l b a T [

Income Statement Balance Sheet

Year end 31 Dec (USD m) 2017A 2018A 2019F 2020F 2021F As at 31 Dec (USD m) 2017A 2018A 2019F 2020F 2021F

Total revenue 5,285 5,159 5,555 5,945 6,373 Property, plant and equipment 5,731 5,662 5,774 5,836 5,931 Casino expenses (3,374) (2,985) (3,116) (3,426) (3,700) Total intangible assets 874 871 869 866 863 Rooms expenses (33) (78) (81) (68) (65) Prepaid expense 190 187 183 180 177

Food & beverage expenses (58) (161) (194) (203) (208) Others 256 201 188 175 163 4June 2019 Entertainment, & other expenses (88) (92) (89) (95) (102) Total non-current assets 7,050 6,920 7,014 7,057 7,134 General and administrative (467) (501) (522) (523) (561) Depreciation and amortization (461) (485) (561) (556) (560) Cash & cash equivalents 1,408 1,437 1,073 1,313 1,321 Others (197) (230) (199) (205) (212) Restricted Cash 45 48 51 53 56 Operating profit 608 627 794 868 965 Investment Securities 90 92 93 95 97 Accounts receivable 177 242 261 279 299 Interest income 4 5 8 7 8 Inventories 35 41 44 47 50 Interest expenses, net (230) (265) (274) (242) (224) Prepaid expense & other 90 98 117 135 154 Other expenses (66) (14) (1) 9 8 Total current assets 1,845 1,957 1,638 1,922 1,977 Profit before tax 315 353 527 642 756 Total assets 8,895 8,877 8,652 8,980 9,112 Income tax 0 0 (22) (29) (34)

] 2 r a M t h g i R _ e l b a T [ Payables & accruals 1,583 1,688 1,818 1,946 2,086 Profit after tax 315 354 505 613 722 ST debt 84 430 133 138 138 Non-controlling interest 32 (2) (5) (6) (7) Other ST liabilities 17 11 6 1 (4)

Shareholders' profit / loss 347 352 501 607 715 Total current liabilities 1,684 2,130 1,957 2,084 2,219

Basic EPS 0.709 0.727 1.088 1.320 1.554 LT borrowings 3,507 3,665 3,845 3,746 3,326 Diluted EPS 0.704 0.721 1.083 1.314 1.547 Others 369 336 321 306 291

Total non-current liabilities 3,875 4,002 4,166 4,052 3,617 (MLCO US)

[Table_CashFlowStatement] Cash Flow Statement Total liabilities 5,559 6,132 6,123 6,136 5,836

新濠博亚 Year end 31 Dec (USD m) 2017A 2018A 2019F 2020F 2021F Total shareholders' equity 2,888 2,127 1,740 1,884 2,146 Net income 315 353 501 607 715 Minority interest 448 618 789 959 1,129 D&A 541 564 561 556 560 Total equity 3,336 2,746 2,529 2,843 3,275 Other non-cash adjustments 132 60 63 67 70 Changes in working capital 175 80 105 104 114 [Table_FinancialRatio] Cash from operating activities 1,163 1,057 1,230 1,334 1,459 Financial Ratios 2017A 2018A 2019F 2020F 2021F Capex (559) (495) (671) (615) (653) Margins

Other investing 155 (115) (10) (10) (10) Operating margin 11.5% 12.2% 14.3% 14.6% 15.1% Melco Resorts & Entertainment Cash from investing activities (404) (610) (681) (625) (663) Net profit margin 6.6% 6.8% 9.0% 10.2% 11.2% Adj. EBITDA margin 24.3% 26.5% 25.8% 27.0% 26.4% Dividends paid (821) (821) (340) (364) (357) Cash from (repayment) debt (194) (194) (118) (94) (420) Return Ratios Issuance (buyback) of equity 4 4 (445) 0 0 ROA 3.8% 4.0% 5.7% 6.9% 7.9% Other financing activities (35) 606 (7) (8) (8) ROE 9.7% 11.6% 19.0% 22.6% 23.4% Cash from financing activities (1,046) (405) (910) (466) (785) Return on capital invested -3.7% 6.3% 8.1% 9.0% 10.8%

Cash at beg of year 1,702 1,408 1,437 1,073 1,313 Liquidity & leverage Net changes in cash (288) 42 (361) 243 11 Leverage (i.e., gearing) 215.5% 286.1% 320.8% 308.0% 243.0% Effect of foreign exchanges (0) (11) 0 0 0 Net gearing 133.7% 188.4% 235.7% 206.3% 153.0% Changes in restricted cash (6) (3) (3) (3) (3) Interest coverage ratio (x) 2.4 2.4 3.0 3.7 4.4 Cash at end of year 1,408 1,437 1,073 1,313 1,321 Current ratio (x) 1.1 0.9 0.8 0.9 0.9

Source: the Company, Guotai Junan International.

Report

Company

[Table_CompanyRatingDefinition] See the last page for disclaimer Page 10 of 11 [Table_PageHeader]Melco Resorts & Entertainment (MLCO US)

Company Rating Definition

The Benchmark: NASDAQ Composite Index ] 1 r a M t h g i R _ e l b a T [

Time Horizon: 6 to 18 months

Rating Definition

Buy 买入 Relative Performance>15%; or the fundamental outlook of the company or sector is favorable. Accumulate 收集 Relative Performance is 5% to 15%;

or the fundamental outlook of the company or sector is favorable. 4June 2019 Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the company or sector is neutral. Reduce 减持 Relative Performance is -5% to -15%; or the fundamental outlook of the company or sector is unfavorable.

Sell 卖出 Relative Performance <-15%; or the fundamental outlook of the company or sector is unfavorable.

Sector[Table_ RatingIndustry DefinitionRatingDefinition] The Benchmark: NASDAQ Composite Index Time Horizon: 6 to 18 months Rating Definition Outperform 跑赢大市 Relative Performance>5%;

] 2 r a M t h g i R _ e l b a T [

or the fundamental outlook of the sector is favorable. Neutral 中性 Relative Performance is -5% to 5%; or the fundamental outlook of the sector is neutral. Underperform 跑输大市 Relative Performance<-5%;

Or the fundamental outlook of the sector is unfavorable.

[DISCLOSURETable_DISCLOSUREOFINTERESTS OF INTERESTS ] (MLCO US) (1) The Analysts and their associates do not serve as an officer of the issuer mentioned in this Research Report. (2) The Analysts and their associates do not have any financial interests in relation to the issuer mentioned in this Research Report. (3) Except for KAISA GROUP (01638 HK), GUOTAI JUNAN I (01788 HK), BANK OF GANSU (02139 HK), BINHAI INVESTMENT (02886

HK), VALUE A SHARE (03095 HK), CAM SCSMALLCAP (03157 HK), HAITIANTIAN (08227 HK), CSOP MSCI-R (CNY) (83149 HK), 新濠博亚 Guotai Junan and its group companies do not hold equal to or more than 1% of the market capitalization of the issuer mentioned in this Research Report. (4) Guotai Junan and its group companies have not had investment banking relationships with the issuer mentioned in this Research Report within the preceding 12 months. (5) Guotai Junan and its group companies are not making a market in the securities in respect of the issuer mentioned in this Research Report. (6) Guotai Junan and its group companies have not employed an individual serving as an officer of the issuer mentioned in this Research Report. There is no officer of the issuer mentioned in this Research Report associated with Guotai Junan and its group companies.

DISCLAIMER

This Research Report does not constitute an invitation or offer to acquire, purchase or subscribe for securities by Guotai Junan Securities Melco Resorts & Entertainment (Hong Kong) Limited ("Guotai Junan"). Guotai Junan and its group companies may do business that relates to companies covered in research reports, including investment banking, investment services, etc. (for example, the placing agent, lead manager, sponsor, underwriter or invest proprietarily).

Any opinions expressed in this report may differ or be contrary to opinions or investment strategies expressed orally or in written form by sales persons, dealers and other professional executives of Guotai Junan group of companies. Any opinions expressed in this report may differ or be contrary to opinions or investment decisions made by the asset management and investment banking groups of Guotai Junan.

Though best effort has been made to ensure the accuracy of the information and data contained in this Research Report, Guotai Junan does not guarantee the accuracy and completeness of the information and data herein. This Research Report may contain some forward-looking estimates and forecasts derived from the assumptions of the future political and economic conditions with inherently unpredictable and mutable situation, so uncertainty may contain. Investors should understand and comprehend the investment objectives and its related risks, and where necessary consult their own financial advisers prior to any investment decision.

This Research Report is not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation or which would subject Guotai Junan and its group companies to any registration or licensing requirement within such jurisdiction.

© 2019 Guotai Junan Securities (Hong Kong) Limited. All Rights Reserved. 27/F., Low Block, Grand Millennium Plaza, 181 Queen’s Road Central, Hong Kong.

Tel.: (852) 2509-9118 Fax: (852) 2509-7793 Report

Website: www.gtja.com.hk

Company

See the last page for disclaimer Page 11 of 11