The opening of luxury hotel Morpheus at City of Dreams and completion of the high-speed rail extension on neighboring Hengqin island has Melco Resorts perfectly placed to become Macau’s biggest mover in 2018 and beyond, according to brokerage Sanford C Bernstein.
In a Tuesday note, analysts Vitaly Umansky, Zhen Gong and Cathy Huang described Melco as the most undervalued stock in the Macau gaming sector, pointing to a number of key growth drivers that could prove to be game changers from 2018.
First and foremost is the opening of Morpheus – the 780-room luxury hotel being built at the company’s flagship property City of Dreams.
“This addition to City of Dreams will allow the property to remain competitive considering the newer property openings targeting a similar client base,” Bernstein said, pointing to the 2016 launch of Wynn Palace and impending opening of MGM Cotai.
Just as beneficial will be the opening of the rail extension on Hengqin, which is expected to drive large volumes of foot traffic directly to Melco’s newest Macau property, Studio City. While the ramp up of Studio City has been slower than other Cotai IRs since it opened its doors in 2015, its position directly opposite the Lotus Bridge border gate will give it a huge advantage over all other properties in Macau in the mass market segment.
“Studio City’s location is a key long-run competitive advantage,” Bernstein noted. “Situated on what we deem to be one of the most attractive land parcels on Cotai, Studio City is situated immediately adjacent to the 24-hour Lotus Bridge immigration complex, which will be the key entry point of future mass traffic from China to Cotai.
“Studio City is the first casino property Chinese visitors can experience upon entering Macau via Hengqin Island. Due to visitor pressures in the peninsula and the accompanying congestion, the government will likely begin shifting greater numbers of visitors to enter Macau from China via the Lotus Bridge rather than through Gongbei.
“The planned mid-2018 opening of the high-speed rail station on Hengqin will eventually lead to greater utilization of the Lotus Bridge. Once the Hengqin station is complete, a significant increase in Chinese visitation entering via the Lotus Bridge is expected.”
Notably, Melco will also be one of the primary beneficiaries of Macau’s long-awaited light rail system, which is due for completion in 2019 and boasts stops directly opposite both Studio City and City of Dreams.
“Once Macau’s light rail connects to Hengqing, the beneficial impact will be even greater,” Bernstein added.
In its 2017 interim report, filed to the Honga Kong Stock Exchange on Monday, Melco Resorts said that Morpheus was “on track” to have its grand opening in the first half of 2018. The company had previously touted the possibility of a Q1 launch for the luxury hotel, however construction has suffered a handful of delays in recent months including a stop-work order from the government following the accidental death of worker and minor damage to the site caused by Typhoon Hato.
Melco Chairman and CEO Lawrence Ho also ordered workers to temporarily suspend work on Morpheus immediately after the storm to aid in city-wide relief efforts.
