Morningstar | Morpheus will Help Melco's Flagship City of Dreams to Ramp Up
We believe the gambling market in Macau will enjoy solid growth in the longer term. This structural tailwind is driven by the rising middle class in China and the penetration rate of less than 2% in Macau, compared with Las Vegas' 12%. The increase in hotel rooms in the next few years will accommodate higher visitation and increased length of stay and drive the top line for integrated resorts like Melco Resorts & Entertainment. With the completion of the Hong Kong-Zhuhai-Macau bridge and light railway transit at the end of this decade, Macau's carrying capacity for tourists will increase. In addition, neighboring Hengqin Island, 3 times the size of Macau, is under rapid development to complement Macau's growth.One of only six concession holders to operate casinos in Macau, 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. Over 90% of normalized EBITDA is generated from the non-VIP segment. This mitigates Melco Resorts' exposure to the volatile VIP segment, which is much more susceptible to regulatory scrutiny as authorities clamp down on corruption, junket activities, and illicit money transfers. We expect the opening of Morpheus with 800 luxury rooms and a gaming area in the first half of 2018 to be the next premium mass business and profit driver for City of Dreams.With David Sisk in charge of City of Dreams, the opening of Morpheus, and better accessibility with the opening of MGM Cotai and Wynn Palace nearby, we expect to see some improvement in the performance of City of Dreams, especially in the mass segment. The company is looking to expand into other markets and has expressed strong interest in Osaka, Japan.
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