Texas Capital downgrades Melco Resorts on Macau GGR outlook, competition

Brokerage Texas Capital Securities has downgraded casino operator Melco Resorts & Entertainment Ltd to a “hold” rating from “buy”, citing weaker visibility on the outlook for Macau gross gaming revenue (GGR). The institution also mentioned heightened competition for premium-mass players, and concerns over the company’s near-term earnings performance. In a report issued on Friday, analyst David Bain said the brokerage’s forecasts for Melco Resorts’ reported earnings in the third and fourth quarters of 2026 were “significantly” below market consensus. Texas Capital’s estimates on adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) for Melco Resorts were respectively 14 percent and 12 percent below consensus for the two quarters. The brokerage forecasts the casino firm’s adjusted EBITDA at US$261.2 million for the third quarter and US$280.6 million for the final three months of 2026. For full-year 2026, Texas Capital expects Melco Resorts to generate adjusted EBITDA of US$1.27 billion, down 11 percent year-on-year, on net revenue of nearly US$4.90 billion, a decline of 5 percent. The Texas Capital’s analyst also revised down the October Macau GGR forecast to a 4-percent year-on-year decline, from a previous expectation of flat performance. Banking institution UBS said in a recent memo that analysts’ consensus on Macau GGR for October was “challenging”. In his own note, Mr Bain observed that Macau’s September GGR had recorded its lowest daily average since January 2025, while industry checks in mid-October had not indicated any significant year-on-year improvement in demand. He added that the fourth quarter of 2026 faced particularly challenging comparisons, given the 15-percent year-on-year growth in Macau GGR recorded in the corresponding period of 2025. Texas Capital said increased visitor arrivals from mainland China had not translated into a corresponding recovery in spending by higher-value casino customers. “We believe China macro, including prolonged deflationary pressures, sticky property market weakness and lower employment have had an impact” on gaming demand in the Macau market, Mr Bain wrote. “Checks also cite a potential GGR impact from China’s July 2026 20-percent tax on assets in offshore trusts, which has triggered restructuring and some capital liquidation,” he added. The brokerage also highlighted continued promotional competition among Macau’s six casino concessionaires, particularly in the premium-mass segment. Following the decline of the traditional junket system, the city’s casino operators have increasingly targeted higher-spending mass-market customers, resulting in elevated player reinvestment. Mr Bain said industry checks indicated that another of Macau’s six concessionaires had recently increased its promotional spending. The development made the brokerage less optimistic that promotional competition would ease over the next several quarters. Despite the downgrade, Texas Capital maintained a positive longer-term assessment of Melco Resorts’ management, casino products and business strategy. “We believe heightened player reinvestment levels are not permanent and give way to a longer-term trend of competition based on product and service, benefiting Melco Resorts,” Mr Bain stated. The analyst said it expected Melco to gain Macau market share in 2027, supported by enhancements to its properties. Melco Resorts operates City of Dreams, Studio City and Altira Macau, as well as the Mocha Clubs electronic gaming machine venues in Macau. Its operations outside Macau include City of Dreams Manila in the Philippines, City of Dreams Mediterranean in Cyprus, and gaming operations at City of Dreams Sri Lanka.