Melco International Ranks In Lowest Tier Among Global Casinos

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Background

Melco International Development Limited is ranked as the eighth-largest gaming company in the world by casino revenue.

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It is largely controlled and operated by the Ho family, who once held a monopoly of the casino business in Macau, and market share is a bit more than 15%.

Gaming and leisure profits are all derived from Macau. Melco gets its name from being the former home of the Macau Electric Lighting Company, one of the oldest companies in Hong Kong.

Business Description

Nearly all revenue and virtually all of its profit comes from its casino operations, with 91% of revenue coming from Macau gaming segment. At the end of last year, Melco increased its ownership to 51% from 38% in its listed subsidiary, Melco Resorts and Entertainment Ltd (MLCO US), and this should allow it to better control its targeting of the mass market.

In Macau, Melco owns the casinos City of Dreams, Altira Macau, Studio City and Mocha Clubs, the last of which has venues spread out across Macau. The territory’s gaming business is conducted via MLCO, which also owns 70% of Melco Resorts and Entertainment (Philippines) Corp. (MRP PM), the operator of City of Dreams Manila.

Melco International

Melco continues to focus its strategy, most recently by entering a sales agreement to dispose of its 41% stake in MelcoLot Ltd (8198 HK), a business that has faced challenges due to Beijing’s regulation of internet lotteries. The sale should unlock value for Melco.

Melco also put up a tender offer for all or any shares in its electronic gaming machines 65%-owned subsidiary, Entertainment Gaming Asia Inc. (EGT US) at $2.35/share.

Leadership

Chairman & CEO “Lawrence” Ho Yau-lung was appointed the group managing director in November 2001 after he completed a general offer for shares of the Company. He was subsequently appointed as chairman and chief executive officer in 2006.

Melco International

Mr. Ho is also the chairman and chief executive officer of Melco Resorts & Entertainment Limited (formerly known as Melco Crown Entertainment Limited), a company listed on the NASDAQ that holds one of the six Macau gaming concessions and develops, owns and operates casino gaming and entertainment resort facilities in Asia.

World Class Benchmarking

Profitable Growth dropped to the worst from being World Class in 2012-2013.

Profitability and Growth have both fallen to the worst in the past twelve months.

Melco International

Asset utilization has been stable at the worst rank for five full years now. Profit margin was World Class for four years but fell to worst in the last twelve months.

Sales growth was the only positive ranking and ranked World Class, while Margin change has consistently ranked worst.

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Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company providing institutional investors with ready-to- invest portfolios in Asia that aim to beat the benchmark through superior stock selection. The company also provides buy- and sell-side clients with financial models to value any company in the world and World Class Benchmarking to determine what companies are financially world class. Previously, as Head of Research at CLSA, Andrew was voted No. 1 Analyst in Thailand in the Asiamoney Brokers Polls for 2008 and 2009. He was also voted No. 1 Analyst in Thailand in the 2009 Institutional Investor magazine All-Asia Research Team Report. Andrew earned his PhD in finance at the University of Science and Technology of China in Anhui province, with a focus on answering questions raised by fund managers and analysts during his career about picking stocks and managing portfolios. In addition, Andrew has been a lecturer in finance for 22 years at various universities in Thailand. Since 2013, he has been the president of the CFA Society of Thailand. He is also the author of How to Start Building Your Wealth Investing in the Stock Market.