Texas Capital Downgrades Melco Resorts, Lowers 2026 EBITDA and Macau GGR View

Texas Capital Securities downgraded Melco Resorts & Entertainment Ltd to a “hold” rating from “buy” and pushed down near‑term earnings forecasts in a report issued on Friday, citing weaker visibility on Macau gross gaming revenue (GGR) and intensified competition for premium‑mass players. Analyst David Bain said the brokerage’s adjusted EBITDA estimates for Melco Resorts in Q3 and Q4 2026 were “significantly” below market consensus.

Downgrade and revised forecasts

Texas Capital now forecasts Melco Resorts’ adjusted EBITDA at US$261.2 million for the third quarter of 2026 and US$280.6 million for the final three months of 2026. For full‑year 2026, the brokerage expects 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 firm said its adjusted EBITDA estimates for the two quarters were 14 percent and 12 percent below consensus, respectively. The downgrade to “hold” reflected the combination of lower earnings visibility and heightened promotional competition in Macau.

Macau GGR outlook and recent indicators

Texas Capital revised its October Macau GGR forecast to a 4 percent year‑on‑year decline, down from a previous expectation of flat performance. The brokerage drew attention to September 2026, noting Macau’s daily average GGR in that month was the lowest since January 2025, and that industry checks in mid‑October did not show meaningful year‑on‑year improvement in demand.

The report also flagged that the fourth quarter of 2026 faces a tough comparison after Macau GGR recorded 15 percent year‑on‑year growth in the same period of 2025. UBS was cited for describing analysts’ consensus on October Macau GGR as “challenging”.

Drivers cited: China macro, tax changes and promotional competition

Mr Bain wrote that China macro factors — "prolonged deflationary pressures, sticky property market weakness and lower employment" — have affected gaming demand in Macau. He also noted checks citing a potential GGR impact from China’s July 2026 20 percent tax on assets in offshore trusts, which has prompted restructuring and some capital liquidation.

The brokerage highlighted sustained promotional competition among Macau’s six casino concessionaires, especially in the premium‑mass segment where operators have increased player reinvestment after the decline of the traditional junket system. Industry checks indicated another concessionaire had recently boosted promotional spending, reducing the brokerage’s confidence that such competition will ease over coming quarters.

Longer‑term view on Melco and assets

Despite the downgrade, Texas Capital maintained a constructive longer‑term view of Melco Resorts’ management, casino products and strategy. Mr Bain said he 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 and runs Mocha Clubs electronic gaming machine venues in Macau. Its non‑Macau operations include City of Dreams Manila in the Philippines, City of Dreams Mediterranean in Cyprus, and gaming operations at City of Dreams Sri Lanka.

"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 wrote.

For further market context see the news section for recent Macau GGR reporting.