Melco Crown Entertainment (MPEL) To Start Paying Quarterly Dividend


Melco Crown Announces New Dividend Policy

After closing out an incredibly strong 2013, Melco Crown Entertainment (MPEL) announced their intention to pay out a special dividend to shareholders in the amount of $191 million. Today the company shared their plans regarding their dividend payouts moving forward, announcing that Melco Crown will begin paying out quarterly dividends of around 30% of consolidated net income attributable to the company. The company cited their increasingly strong financial position bolstered by significant growth in earnings and cash flows at City of Dreams Macau, as reason to institute their new dividend. The special dividend that will be paid in in the amount of $191 million, translates to approximately $0.34 per ADS.

City of Dreams Macau Continues to Dominate Premium Mass Market

As evidenced in their most recent quarterly report released two weeks ago, City of Dreams Macau continues to grow at a staggering pace. In Q4 2013, City of Dreams generated revenues of $1.1 billion, up from $772 million in the previous year. The jump in revenues led to Q4 2013 adjusted EBITDA of $347 million, a 58% jump year over year. These gains were driven by a 57% rise in mass table games revenue. City of Dreams non-gaming revenues during the quarter rose 10% year over year as room occupancy rates improved 2% to a staggering 98%, average daily room rates also increased by 2% to $193. During 2013, market wide revenues in Macau rose 19%. Melco Crown was able to grow at an even faster pace as the mass market segment that City of Dreams caters to continued to deliver above-market growth. This trend should be expected to continue for the foreseeable future as infrastructure improvements (Hong Kong – Zhuhai – Macau Bridge, and the Macau Light Rail System) enable more and more middle class Chinese to travel to Macau.

City of Dreams Manila, Studio City Macau Remain on Track

At their most recent conference call Melco Crown reiterated that both their City of Dreams Manila and Studio City Macau resorts are on budget and on track to open at their previously planned dates. During Q4 2013 MPEL announced the addition of the Nobu Hotel to their City of Dreams Manila complex, adding to the collection of luxury brands that this new world class resort is already comprised of. Scheduled to open late this year, the City of Dreams Manila project gives Melco Crown an early and dominant position in the new Philippines’ gambling market that is expected to eclipse Las Vegas in revenues by 2017.

CoD Manila

Melco Crown’s cinema themed mega-resort, Studio City Macau, remains on schedule to open in mid-2015. Studio City Macau will lie on the premier location on the Cotai strip (think Bellagio in Las Vegas), and will also cater to the premium mass market crowd that Melco Crown has had so much success with at City of Dreams. The company also remains on track with their plans for a fifth and final tower at City of Dreams Macau opening in late 2016 – early 2017.

MPEL is a Buy at Current Levels

Melco Crown Entertainment was our very first buy recommendation in September 2013 when shares traded at $31.60. Despite shares appreciating 35% since our initial highlight of the company, I continue to view MPEL as a strong buy and the top play in Macau (Las Vegas Sands is a close second).  Gaming revenues during 2013 for the entire Macau market easily continued their trend of outperforming analyst expectations, and 2014 appears to be off to a similar start with 20% year over year growth being reported thus far for the month of February. Management’s decision to implement a regular quarterly dividend with two massive projects still in the pipeline is a testament to the extremely strong financial position Melco Crown has achieved thus far and to their confidence in the future of the company as a whole.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Reviewing Our 2013 Picks: MPEL, MSG, TTWO, YHOO, FL

5th Street Research

5th Street Research’s Buy Recommendations Easily Outperform The Market

Having been away from the market with other obligations for the past month or so, I thought it would be interesting to review our 2013 picks before making any new recommendations in 2014. Since launching in late September, we have published buy recommendations on 5 different companies: Melco Crown Entertainment (MPEL), Madison Square Garden (MSG), Take Two Interactive (TTWO), Yahoo (YHOO), and Foot Locker (FL). While the S&P 500 and Nasdaq finished out the year strong, our picks have easily outperformed the broad markets, returning an average of 16.5% vs. 7.5% for the S&P 500. A brief update on each of our recommendations below…

Melco Crown Entertainment (MPEL): City of Dreams Manila and Studio City Macau

Buy Recommendation
Published 9/27/2013: The Best Bet in Macau is Melco Crown Entertainment (MPEL)
Price Then: $31.60
Price Now: $42.99
% Change: +36%


Macau as a whole has been the recipient of quite a bit of attention around here since launching, and for good reason… Macau has been the world’s fastest growing economy over the past decade with average annual GDP growth near 15%. It generates more than 7x  the revenue of Las Vegas and is the gambling epicenter of the world. Melco Crown’s City of Dreams is one of the most impressive properties in Macau and dominates the ultra important “Premium-Mass” market in the region. MPEL’s revenues and profits stand to explode over the next two years as they open two new massive properties, Studio City Macau and City of Dreams Manila. Studio City boasts the best location on the Cotai Strip, Macau’s version of Las Vegas Blvd., and is poised to be one of the biggest beneficiaries of the continued growth of the Macau. Despite the 36% gain since our initial recommendation of their shares, I continue to view MPEL as a strong buy for the foreseeable future.

Madison Square Garden (MSG): Hidden Assets and Rising Sports Franchise Valuations

Buy Recommendation
Published 10/11/2013: Significant Value in Madison Square Garden (MSG)
Price Then: $57.54
Price Now: $56.72
% Change: -1.4%


Madison Square Garden has been the laggard of our model portfolio thus far, currently down 1% since our original recommendation. The New York Knicks have gotten their season off to a terrible start this year, however there has been little to no other news or events out of MSG in the past 3 months. With the Madison Square Garden renovation project finally complete, cash flows and earnings will start becoming normalized for the first time since their IPO. The real story here though remains the hidden value of the company’s array of assets. As the owner of the Knicks and Rangers, MSG Networks, Madison Square Garden Arena and its associated air rights, and numerous other venues/ assets; MSG remains greatly undervalued when using a sum of the parts analysis. This one may require some patience, but I continue to view MSG as a strong buy.

Take Two Interactive (TTWO): Massive Cash Hoard, Best IP Portfolio in the Industry

Buy Recommendation
Published 10/15/13: GTA V Makes Take Two Interactive (TTWO) a Steal
Price Then: $16.94
Price Now: $17.80
% Change: +5%


Although shares of Take Two have appreciated since our recommendation, they have lagged the market, which is somewhat perplexing after Grand Theft Auto V shattered analyst estimates and became the highest grossing entertainment release ever. While analysts anticipated TTWO would sell 18 million units of GTA V during their most recent quarter (a number I reported would prove to be very low), 25 million copies were actually sold. TTWO stock failed to jump on this news though, they actually traded down sharply the next few sessions as management failed to give much clarity regarding their future pipeline/ next blockbuster release. TTWO’s haul from GTA V should leave the company with more than $1B worth of cash on their balance sheet. With a market cap of only $1.6B, this cash hoard is substantial. Take Two also owns arguably the most valuable intellectual property portfolio in the industry with proven franchises such as GTA, BioShock, Red Dead Revolver, Max Payne, and NBA 2k. Despite management remaining mum on the next big release for now, they have an amazing track record when it comes to making hits. Everything considered, I see fair value for Take Two stock between $22-$24, at least 25% upside from today’s closing price. I maintain a buy rating on shares of TTWO.

Yahoo (YHOO): Alibaba Stake Continues to Create Value, Meyer on Acquisition Spree

Buy Recommendation
Published 10/15/2013: Amended Alibaba Agreement Makes Yahoo (YHOO) More Attractive
Price Then: $33.38
Price Now: $41.03
% Change: +22.9%


As Alibaba continues their rapid growth, Yahoo continues to reap the rewards. Despite a core business that is still struggling to gain momentum, Yahoo had a great 2013 with shares more than doubling during the year. New CEO Marissa Mayer has been on quite the shopping spree since taking the helm, with Yahoo acquiring 28 companies in 2013, including a $1B purchase of Tumblr. Mayer has made it clear that she intends to ensure Yahoo remains the world’s homepage while also placing a large emphasis on mobile and content creation. In a demonstration of their commitment to content, Yahoo recently hired Katie Couric as a ‘global anchor’ and released a new News Digest App. It is yet to be seen how any of this efforts will pan out, but if nothing else, Mayer has been ambitious. YHOO should still see some upside from Alibaba as it nears its inevitable IPO and could get a lift from the news when announced, but shares aren’t as much of a bargain as they were 3 months ago. If you already own YHOO stock I wouldn’t be in any rush to sell it, but I wouldn’t be in any rush to go out and buy more either. I view shares as undervalued still with 10-15% upside, but would need to see core operations start to show signs of improvement before considering YHOO a strong buy at current levels.

Foot Locker (FL): Buy into Nike, Adidas, and Under Armour’s Growth at a Discount

Buy Recommendation
Published 10/26/2013: Try Foot Locker (FL) on for Size
Price Then: $34.20
Price Now: $41.11
% Change: +20.2%


Last but certainly not least of our recommendations during 2013 was Foot Locker. The athletic apparel industry has been one of the strongest performers of the past 25 years. Nike is one of the all time great growth stocks and shows no sign of slowing momentum. Adidas and Under Armour fit the same mold. Justifiably so, all three of these companies trade at lofty valuations. Foot Locker is the largest retailer of athletic shoes in the US, dominating the market with the portfolio of brands including FootAction, Eastbay, Champs, and of course their namesake stores. Management has proven to be shareholder friendly, approving a $600 million buyback and an 11% dividend hike last year. While many retailers reported lackluster earnings in their most recent quarter, Foot Locker easily exceeded both earnings and revenue estimates. Despite all of this, shares still trade at a significant discount to retailers such as Finish Line and Dick’s Sporting Goods. The athletic apparel industry has shown no signs of slowing, and Foot Locker is as well positioned to benefit from this trend as anyone. As long as they continue to trade at such cheap valuations relative to their peers, I will continue to maintain a buy rating on shares of FL.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Manny Pacquiao Fight and Grand Prix Drive November Revenue Growth in Macau


November Gambling Revenue Growth in Macau Tops Estimates

On the heels of  a record setting October, gambling revenues in Macau rose 21.3% year-over-year during November to $3.78 billion, topping analyst expectations once again. During the month Macau hosted their annual two week long Grand Prix event and a Manny Pacquiao boxing match at Las Vegas Sands’ (LVS) Venetian Macao resort, attracting more VIPs than anticipated as the region continues to diversify their entertainment options and find new ways to attract wealthy gamblers. Melco Crown (MPEL) and Las Vegas Sands are best positioned to capitalize on this trend with their strong presence on the rapidly growing Cotai Strip, Macau’s version of Las Vegas Blvd. Given the revenue reports out of Macau the past two months, the major casino operators are well on their way to topping analyst estimates during the 4th quarter and continue outperforming the broad markets.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

City of Dreams Macau Growth Fuels Record Quarter for Melco Crown Entertainment (MPEL)

Melco Crown Entertainment (MPEL) Beats Estimates Once Again as City of Dreams Macau Continues to Dominate the Premium Mass Market

Having seen great quarterly reports from Las Vegas Sands (LVS) and Wynn Resorts (WYNN) come out the past couple weeks, it should come as no surprise that Melco Crown Entertainment (MPEL) once again beat estimates and reported record numbers. During Q3 2013 Melco Crown’s revenues grew 24% year-over-year to $1.25 billion, generating earnings per share of $0.33, a 68% increase. Adjusted EBITDA of $315 million represented a 39% jump from last year’s numbers, as City of Dreams continued to experience rapid growth in the mass market table games segment. Some highlights from their properties…

  • City of Dreams Macau net revenue was $958 million, up from $747 million in Q3 2012.
  • City of Dreams Macau Adjusted EBITDA of $298 million, up 46% from $204 million last year.
  • City of Dreams Macau mass table games revenue grew 73% year-over-year, the primary driver of the improvement in Adjusted EBITDA.
  • Altira Macau revenue was $242 million, up from $216 million.
  • Altira Macau Adjusted EBITDA remained at $30 million, flat from Q3 2012.
  • Mocha Clubs revenues grew 9% to $40 million, Adjusted EBITDA increased 20% to $11 million.

MPEL Update on Progress at Studio City Macau and City of Dreams Manila

Melco Crown’s CEO Lawrence Ho also provided an update on the status of their two major projects, Studio City Macau and City of Dreams Manila…

Studio City remains on budget and on track to open in mid-2015 with clear progress being made on the main superstructure following the successful completion of the foundation and piling work. This cinematically-themed integrated resort located in Cotai represents a powerful and complementary addition to our current portfolio of operating assets in Macau, offering a unique array of entertainment and interactive attractions which will cater to a broad range of customers in Macau and help drive diversification of the Macau economy.

We recently announced City of Dreams Manila as the brand of our integrated casino resort in the Philippines which, together with an ultra-luxurious Crown Towers branded hotel, demonstrates our commitment and confidence in this exciting leisure and entertainment market. We believe our experience in developing and operating integrated resorts in Asia, our unique competitive position in the VIP segments and experience in delivering world-class entertainment, together with our strong local partner, means we are in a unique position to capitalize on the economic growth in the Philippines and the region, and support the Philippine Government’s leisure and tourism objectives.

City of Dreams Manila is Melco Crown Entertainment’s first foray outside of Macau, representing the next step in our mission of becoming the leading gaming and entertainment company in the region. We continue to investigate opportunities in other key Asian markets where they meet our strict approach to the deployment of capital, including Japan.

The mention of Japan is noteworthy as many believe a casino bill will be passed during the next legislative session, as a means of housing and providing more entertainment to tourists in anticipation of the 2020 Summer Olympics in Tokyo. Prime Minister Shinzo Abe is a supporter of the casino bill, expected to generate $10 billion a year in economic benefits, and his high approval ratings significantly increase the likelihood of the it being passed. Many analysts see Japan becoming the second biggest gaming market in the world should the bill go through, surpassed by only Macau. Melco Crown stated in September that they would invest more than $5 billion in Japan casino resorts if granted permission to do so. The opening of Studio City Macau and City of Dreams Manila will drive huge growth for Melco Crown alone, but the possibility of  a Japan property should be viewed as a huge potential catalyst for shares. Melco Crown Entertainment has a bright future and we expect them to continue to outperform as Macau continues to thrive. Their strong quarterly results support our prior recommendation of MPEL, and they remain one of our top picks.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Macau Gambling Revenues Reach Record High In October

Gambling Revenues In Macau Grow 32% During October

After seeing very strong 3rd quarter  results from Las Vegas Sands (LVS) and Wynn Resorts (WYNN), it appears the momentum in Macau is still picking up steam. During October, gambling revenues in the region totaled $4.6 billion, the highest monthly total in history. During the Chinese Golden Week holiday, historically one of the most profitable weeks of the year in Macau, visitors from mainland China increased by 10.7% year-over-year. This jump can be attributed to the continued rise of the “mass-market” segment, composed of China’s growing middle class. These visitors are coming in higher numbers and spending more money than ever, a huge positive for the industry as it reduces the casino operator’s reliance on the more volatile VIP market, made up of super wealthy “whale” gamblers. Melco Crown Entertainment (MPEL) stands to be a big beneficiary of this trend as their City of Dreams Macau property is the dominant player is the mass-market sector. Hotels were near full capacity for the Golden Week despite the cheapest five-star room on the Cotai Strip priced at $737 per night. With such a strong start to the 4th Quarter in Macau, LVS, MPEL, WYNN and MGM are well positioned to outperform expectations for Q4 2013.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Wynn Resorts (WYNN) Follows Las Vegas Sands’ (LVS) Lead And Blows Out Q3 Estimates

Las Vegas Sands (LVS) and Wynn Resorts (WYNN) Continue to Thrive in Macau

The Macau gaming industry continues to remain our favorite sector. The Q3 numbers released by both Las Vegas Sands (LVS) and Wynn Resorts (WYNN) in the past week reaffirm this thesis. Las Vegas Sands kicked off the Macau earnings on the 17th, reporting earnings of $0.78 per share on revenue of $3.57 billion, analysts had predicted $0.75 EPS and $3.46 billion in revenue. Following today’s close WYNN reported revenues of $1.39 billion and $1.84 EPS, easily surpassing the $1.37 billion in revenues and $1.66 earnings per share that the street was looking for.

Wynn’s Growth Solid But Will Remain Limited Until Wynn Palace Opens in 2016

While Wynn’s numbers continue to impress, it is worth noting that their growth prospects are limited until 2016 when they open the Wynn Palace on Macau’s Cotai strip. Until then expect growth rates near 10% as they continue to refine their Macau operations and gross gaming revenues for the region as a whole remain growing nearly 20% annually. The Wynn Palace project sports a $4 billion budget and is expected to be one of the most impressive properties in Macau when construction is completed, featuring one of the biggest casino floors in the region and a 1,700 room hotel.

U.S. operations continued to remain stagnant as the Las Vegas gaming market continues to struggle. Revenues were up 1% year over year for the quarter totaling $392.5 million. Adjusted property EBITDA was $106.5 million, down 3.5% from the past year.

Las Vegas Sands Firing On All Cylinders In Macau and Singapore

CEO Sheldon Adelson reported that their Macau property portfolio attracted over 16 million visitors in the past quarter, generating revenue of $2.34 billion and $784 million of adjusted property EBITDA. The Venetian Macao remained their top property in terms of sales and profitability, generating revenues of $935 billion and $317 million of operating income. Sands Cotai Central, the newest property in the Sands China portfolio, looks poised to overtake The Venetian as their most valuable casino in Macau. After opening their second phase, Sands Cotai Central experienced revenue growth of 149% year over year in the most recent quarter, swelling to $736 million in Q3. A third phase is expected to include a St. Regis hotel and branded residences, which will only drive further profitability. The Four Seasons Hotel Macao also continued to perform for LVS, with revenues up 47% and EBITDA up 107.5%. The only slacker in the Sands China portfolio was the dated Sands Macao, which still grew EBITDA 11% year over year despite revenues falling by 3% to $305 million.

Pictured above, Marina Bay Sands is the most impressive and expensive property in the LVS portfolio, and surprisingly to some resides in Singapore not Macau. Opened in 2011 and carrying a price tag of S$8 billion, Marina Bay Sands’ operating results continue to justify management’s decision to invest so heavily in the project. As one of only two licensed casino operators in Singapore, Las Vegas Sands stands to benefit greatly from the swelling in wages and net worth in the city-state. Revenues at Marina Bay Sands grew 24% during Q3, while adjusted property EBITDA jumped 43% to $373.6 million. Having lived in Singapore this year I can personally attest to the marvel that this casino/ resort is, and have witnessed first hand the huge appetite for gambling that exists in Singapore.

LVS and WYNN Results Bode Well for MGM and MPEL

We now look ahead to MGM Resorts (MGM) reporting on October 31st and Melco Crown Entertainment (MPEL) on November 5th to round out another strong earnings season in Macau. Already displaying great strength throughout the year, look for MGM and MPEL to also exceed consensus estimates this quarter on the heels of gross gaming revenues for Macau as a whole beating expectations the past few months. Initial numbers from Golden Week in Macau also came in ahead of expectations as reported two weeks ago and could lead to upward estimate revisions for Q4. Previously the subject of a feature report, Melco Crown Entertainment remains our top pick in the sector.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Golden Week Gaming Revenues Up In Macau

Macau Casinos Continue to Outperform During Golden Week: LVS, MGM, MPEL, WYNN

The Golden Week holiday in China is one of the biggest weeks of the year for Macau historically and this year proved no different based on preliminary data from Macau officials. Gaming revenues for the first 6 days of October were up 18- 22% year over year. Analysts were looking for a 16-21% hike in revenues. The average daily table win for the first six days of October in Macau was HKD $1.68 billion, a 30% increase from the same period last year. According to Nomura Securities analysts Harry Curtis, Louise Cheung, and Brian Dobson…

Mass headcount and play levels remain strong, which we think should continue. We estimate mass table revenues could be up 31-34% YoY for the month, which is just above recent trend of 30-32%.

Adding to a very strong September, numbers for Macau continue their trend of coming in stronger than expected. In no surprise to those with an understanding of the Macau market, tourist arrivals during the Golden Week were up 4.7% year over year, despite a ban on ‘zero-fare’ travel packages from mainland China. October is supposed to be a record month in Macau for Las Vegas Sands (LVS), MGM Resorts (MGM), Melco Crown Entertainment (MPEL) and Wynn Resorts (WYNN), and the first weeks result do nothing to indicate otherwise. I remain bullish on the entire sector and MPEL remains our favorite play in Macau out of the group. Numerous other analysts have reiterated or raised their ratings on the group, all echoing bullish sentiment. Citi also named MPEL as their top pick last week.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

Strong September for Macau Casinos


Gaming Revenues Continue to Grow In Macau: LVS, MGM, MPEL, WYNN

Capping off another strong month for Macau Casinos, the Macau Gaming Inspection and Coordination Bureau reported that gross gaming revenue for the month of September rose 21.4% year over year, versus a 12.3% rise in September 2012. For the year, Macau gaming revenues are up a robust 16.7%, as most month’s revenue figures year to date have exceeded expectations. Both the VIP and mass market segments have been strong. This bodes well for Melco Crown Entertainment (MPEL), Wynn Resorts (WYNN), Las Vegas Sands (LVS), and MGM Resorts (MGM). MPEL remains our favorite of the group, possessing the best growth prospects, cleanest balance sheet, and is currently the only Macau pure play listed on US markets. In the most recent quarter, 70% of WYNN revenues came from Macau operations, 64% for LVS, while MGM generated only 34% of net revenues in Macau. Expect to see gross gaming revenues continue to come in strong for the whole region for the remainder of this year and into next.  For more on MPEL check out our full report, The Best Bet in Macau is Melco Crown Entertainment.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

The Best Bet in Macau is Melco Crown Entertainment (MPEL)


Melco Crown Entertainment (MPEL): Pure Play on Booming Asian Casino and Gaming Market

The rise of Macau is a story that has been well documented over the years. Many have read of this booming microcosm nestled under mainland China, yet few domestic investors/ analysts have ever set foot in this gambling epicenter. After finishing up a stint with a hedge fund earlier this year, I spent the last 4 months in Asia, including 3 months in Macau. I leave very bullish on the region as a whole, having spent a significant amount of time at all of the major casinos and experiencing the massive volume of foot-traffic, the amount of disposable income in middle/upper class China, and the rapidly expanding infrastructure that will continue to drive increases in the number of visitors to the area for years to come. MGM Resorts (MGM), Las Vegas Sands (LVS), and Wynn Resorts (WYNN) all feature impressive properties in Macau and provide a means of gaining exposure, although they remain saddled by their US operations. However, Melco Crown Entertainment (MPEL) is a pure play on the region, while sporting the cleanest balance sheet and fastest growth rates of the group, making it our favorite of the 4 domestically traded casino operators with a presence in Macau.

Casino revenues in Macau for 2012 totaled $38 billion, a figure that is expected to reach $70 billion in 2017. Year to date, revenues are up 16.2% in 2013, with August up 17.6% year over year. Impressive as these numbers are, Melco Crown Entertainment’s growth rates dwarf these. In their most recent quarterly report they displayed rapid growth across the board…

  • Net revenue for the second quarter of 2013 was $1,295.0 million, representing an increase of approximately 38% from $938.5 million for the second quarter of 2012.
  • Adjusted EBITDA was $330.1 million for the second quarter of 2013, as compared to $203.8 million in the in Q2 2012.
  • Net revenue at City of Dreams was $967.0 million, up from $684.2 million.
  • Total non-gaming revenue at City of Dreams in Q2 2013 was $62.2 million, up from $56.0 million in Q2 2012. Occupancy per available room was 97% as compared to 90%.

City of Dreams Macau: Capturing the Mass Market and VIP Segments

In City of Dreams, Melco Crown owns and operates one of the most valuable properties in all of Macau. While other casino operators have been hesitant to build a Vegas-style resort in the area, unsure of how they would fare in a much different culture, MPEL ran with the idea and is reaping the benefits. Lodging options include a Grand Hyatt, Hard Rock Hotel, and Crown Towers. City of Dreams also features the House of Dancing Water, a $250m production best described as a Cirque du Soleil 2.0, their best of many shows. Also of note is Cubic, the only major nightclub in Macau, often hosting huge concerts and events. Construction on the final tower, which will be the largest and most extravagant of the 5 when finished, begins later this year and will contribute significantly to earnings/ revenue when complete. The 5th tower will be 1.5 million square feet in total gross floor area, compared to Altira which is only 1 million square feet. City of Dreams is by far the most integrated and complete resort experience offered in Macau. Already one of the largest casinos in Macau, it continues to gain market share, a fact that analysts seem to overlook based on their tepid projections for next year. The current consensus revenue estimate of $5.37 billion FY 2014, which would represent only 9% growth year/year over their FY 2013 expectations. Expected revenue growth of 20-25% is far more reasonable for Melco Crown Entertainment. Macau gaming revenues as a whole are expected to grow in excess of 15% annually. With the most prominent resort/ casino on the strip, the highest mass table yields in the market, and increasing market share, revenue growth should outpace the rest of Macau with no major casino openings slated for the near future.

Melco Crown also operates the Altira casino, which has seen revenue and EBITDA grow at rates almost identical to that of City of Dreams, but is about 1/4th of the size. As of June 30th, 2013, Melco is in a net cash position with about $300 million more cash on their balance sheet than debt. Given this strong financial footing, MPEL is poised to grow quickly, and grow quickly they intend to do.

Rapid Growth Potential: Studio City Macau and Entertainment City in Manila

Looking to expand their presence in Macau, Melco Crown purchased a 60% interest in Macau Studio City in June 2011. This $2.9 billion project is slated to open mid-2015 and will be a full integrated resort like City of Dreams, but featuring a cinematic theme. Located next to the Immigration Station, Studio City will be the first and most prominent casino on the strip to visitors arriving from mainland China. To give an idea of the size of this project, consider that City of Dreams boasts 450 gaming tables and 1400 slot machines. Upon opening in 2015, Macau Studio City is expected to feature 400 table games and over 1200 slots, as well as two 5-star hotels and a variety of entertainment and shopping options. It is reasonable to expect Studio City to do comparable numbers to City of Dreams in a few years, which will be a huge windfall for MPEL shareholders.

Opening before Studio City, Melco Crown is taking their first steps outside of Macau, teaming up with Filipino conglomerate SM Group to create a $1 billion resort/gaming/shopping complex in Manila. The Belle Grand Manila will feature 950 hotel rooms, 240 table games, and 1250 slot machines. Gambling revenues are expected to grow from $2.5 billion this year in the Philippines to over $10 billion by 2017. Belle Grand is the second of a planned 4 casino resorts that will make up Entertainment City in Manila. Management has recently reiterated that this project is on-schedule and will open its doors mid-2014. As one of only 4 casino operators granted a gambling license in the Manila Bay project, Melco Crown stands to capture a very large portion of this rapidly growing market that is expected to surpass Las Vegas in gaming revenues within 3 years.

MPEL Is a Buy at Current Levels, Top Pick in Macau

While WYNN, MGM, and LVS all appear poised to outperform; MPEL is currently the best in class of the domestically tradable Macanese casino operators. Already sporting the fastest growth rates of the group, Melco Crown should continue this trend with their pipeline of properties that will be opening in the next few years, which will more than double the amount of table games and slots they operate. With these projects already funded and MPEL’s strong balance sheet, management has stated that they will begin to look at a regular dividend policy beginning the end of this year. Look for them to continue to seek out opportunities to expand throughout Macau and Asia as a whole. They have been lobbying and supporting gaming initiatives in Japan for 8-9 years and for the past 4 years in Taiwan. Trading at a forward P/E of 20, while boasting growth rates near 40% and opening two massive casinos within the next 2 years, the street seems to be vastly underestimating the sustainability of their growth and operations. As a result I feel MPEL is extremely undervalued when compared to their peers, and shares could easily double by end of 2014. These are exciting times in Macau, and Melco Crown Entertainment’s positioning in the industry makes this one of our highest conviction buys in the market today.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article.

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