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 (increased to 365), and 1250 slot machines (increased to 1680). 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.
Has management spoken at all about the number of tables/slots they expect to have in MSC when it opens?
Macau growth should be strong in 2014, says Wells Fargo
Wells Fargo expects 2014 to be another strong year for growth in Macau, and the firm reports that Q1 Macau gaming revenue is tracking up about 20% year-over-year, well above expectations. The firm expects Las Vegas Sands (LVS), Melco Crown (MPEL), MGM (MGM) and Wynn Resorts (WYNN) to beat Q1 Macau consensus property EBITDA estimates by 3%-6%. Wells thinks valuations in the sector remains undemanding, and expects margins among companies in the space to rise.
GDP growth has been slowing in China since 2011. How has gaming in Macau been doing during that period?
The current slowdown is being orchestrated by the government in recognition that structural changes are necessary for more sustainable long term growth. The government has the ability to step on the pedal if growth slows too much which, IMO, removes the threat of a severe down turn much below the 7.5% target.
Anyone who has been in MPEL for a while knows it can be vulnerable to short term swings based on headline risk. Look what happened at the beginning of Feb after Jan's GGR number came out.
I guess I'm saying that if China's GDP comes in slightly below the target level I don't see it effecting Macau all that much. It is much more perceptual than material in terms of EBITDA. And based on future EBITDA estimates, which are unlikely to be revised by more than 1 or 2%, the stock is not expensive.
Nomura Securities and Wells Fargo Securities estimate this month’s growth in gross gaming revenue will be between 13 percent and 18 percent, Barron’s reports.
Wells Fargo says this month’s average daily revenue was MOP1.3 billion (US$162 million) up to Sunday, 16 percent more than at the equivalent point last year.
It says gaming revenue growth this month could be up to 18 percent higher than a year ago.
Nomura has issued similar forecasts.
MACAU, March 12 (Reuters) - Galaxy Entertainment Group Ltd and Melco Crown Entertainment Ltd look best placed to benefit from the next phase of Macau's development as the world's gambling capital adds eight more mega-casinos by 2017.
The expansion will take place in the Chinese territory's glitzy Cotai Strip and is expected to more than double Macau's annual gaming revenues to $115 billion in four years, according to research from U.S. brokerage Wells Fargo.
Cotai is an area of reclaimed land that is becoming a Las Vegas-style tourist hub with shopping centres, hotels and entertainment to complement the casinos.
U.S. billionaire Sheldon Adelson's Las Vegas Sands Corp was the strip's pioneer, setting up the Venetian casino there in 2007. Adelson's Hong Kong-listed Sands China Ltd is set to open its final casino planned for Macau at the end of 2015 in Cotai, but for Melco and Galaxy, their growth in the area is just beginning.
Galaxy and Melco's casinos will be the first properties to open in the second expansion phase starting early-2015.
That puts them ahead of peers like MGM China and Wynn Macau in the race for dealers and gaming tables, which are both in short supply. MGM and Wynn are also planning to open casinos in Cotai, but at a later date.
Macau: March starts strong, according to checks
According to our channel checks, Macau table-only gross gaming revenue (“GGR”) is MOP11.2b through March 9. The March GGR run-rate is ~+28% YoY or MOP40.0b, after we include an assumption for slot play. Results are trending +5% off of February’s record results. Over the past 9 years, March gross gaming revenue has averaged 10.2% better than February – but the month-over-month result varies widely from +29% to +1%. Our March forecast for MOP36.8b or +18% remains.
Early March results may have seen some continued VIP follow-through (pent up demand) post Chinese NY, according to checks. Many VIPs head to the Island after the holiday subsides. Still, given the National People’s Congress has been held during the checked days, we find March results to date encouraging.
Early market share shows a pull-back by LVS versus last month. As mentioned previously, we believe LVS in February benefited from its Island-high hotel capacity during the high-occupancy Chinese New Year period. We also believe LVS hold was slightly off over the first 9 days of this month. Hold evens out over time.
Market Share. According to our checks, table-only market share through March 9 is: SJM at 20.4% (vs. estimated February 23 share of ~22.0%), Galaxy at 20.1% (vs. ~21.5%), LVS at 20.8% (vs. ~25.0%), MPEL at 14.0% (vs. ~12.2%), WYNN at 14.0% (vs. ~10.9%), and MGM at 10.7% (vs. ~8.4%).
As much as I enjoy reading in depth articles like IBD's what attracted me to the stock in the first place is the simplicity of the story. Which essentially is "if you build it they will come" and when they leave MPEL will have some of their money. MPEL has a pretty place where people go to lose money, more people are going there............a trend that will continue for years to come, and they are in the process of building more pretty places for people to come to. The only thing left to figure out is how fast EBITDA will grow and how high does the stock go.
Here is the first part. As someone once said "you can't always get what you want but if you......................
Might not get all they want until after 2022 suggests Secretary for Economy and Finance
One of Macau’s most senior officials moved to head off residents’ protests about the number of gaming tables the government will grant for new Cotai projects.
Secretary for Economy and Finance Francis Tam Pak Yuen said on Friday the government would not grant all gaming tables the casino operators have requested for their new resorts in Cotai – at least until 2022. That hands the problem on to someone else, as the former factory boss is expected to retire from his post within 12 months, after serving as economy secretary since the handover from Portuguese administration in 1999.
Mr Tam also said the new Cotai resorts would be “the last round of large-scale gaming development” here. He suggested it would be enough to make the territory competitive against other gaming jurisdictions for decades.
Speaking on the sidelines of a seminar organised by the Macau Chamber of Commerce on Friday, Mr Tam said, “We do not rule out that the projects can get all the tables they have requested – namely 500-700 tables each – 10 years later
Gaming revenue could reach US$4.5 billion (MOP36 billion) in the Philippines this year, state-run Philippine Amusement and Gaming Corp says.
The Manila Standard Today reports that new casino-resorts in the Entertainment City complex in Manila could send annual gaming revenue as high as US$7 billion within the next five years, according to Pagcor chief executive Cristino Naguiat (pictured).
“This year’s gaming revenues will be driven by the Entertainment City, of course,” says Mr Naguiat.
Casino revenue in the Philippines reached US$2.2 billion last year.
It's 26% as of Dec. 31. I imagine funds have been accumulating this year based on future prospects and that there was some profit taking going on at the end of 2013.
I guess the point I was making was more about pipeline growth and the stock's price relative to that growth than the preferred metric for valuation. No matter if you focus on EBITDA or EPS it stretches anyone's credulity to suggest the stock price can not be justified based on forward looking results. Also, that the sell side is beginning to make adjustments for what is to come as evidenced by the EPS bumps, and what I'm sure are commensurate EBITDA adjustments as well. Basically I'm saying the optics of the trailing p/e make the stock appear richly valued when in fact it is not.
The analysts are starting to catch on. In the last 90 days consensus estimates have gone from $1.79 to $2.07. They'll go up some more. The point being the stock is only trading at 21x 2015 eps. 2015 is a long way off you say? True. But visibility is extremely good unless something hugely unforeseen happens.
A few people have sent me e-mails about getting on the new board at ikghboard. freeforums.net.
Go to the site and register or I can't approve your request. You must register to be able to post there.
Projects. Both its City of Dreams, Manila (Philippines casino resort project) and
Macau Studio City (Cotai casino resort project) are on track and budget. For COD,
Manila, we continue to believe MPEL will outperform Philippine casino peers
given its presence in Macau (junket relationship base/database in Macau), as well
as its ability to leverage partner SM Group’s local database. SM is the leading retail
player in the Philippines, with department stores, supermarkets, and malls. MPEL
believes the Philippines gaming taxation changes will likely be resolved by early
next year with no material change/result to its bottom line – a catalyst for MPEL’s
MCP.PS ($13.18, NR). COD Manila is the only new major casino projected to open
in Asia next year. For Studio City, we continue to believe its geographic position
directly adjacent to the Lotus Bridge border connecting Hengqin Island, which is
building significant hotel capacity and critical mass, is underappreciated. MPEL
set a target opening for COD Tower 5 of late-2016/early-2017. As competitors
segment existing floors in attempts to compete with MPEL’s lead in premium
mass, we look to Tower 5 as a new premium mass casino resort in of itself (with
the possibility of additional table authorization from the Macau government given
its scale and planned amenities). Finally, Japan remains on the table for MPEL –
which should not be overlooked as a potential operator there should gaming pass,
in our view.
GCA (Buy, $9.20). GCA kiosk sales are leading an early stage replacement
cycle. While domestic regional gaming revenue results have shown little upward
momentum, GCA kiosk sales, renewals, and cost discipline leave us comfortable
with our 4Q13 and CY14 cash EPS outlook. We believe GCA offers stable cash
flow, with upside optionality not yet embedded in its stock multiple. Upside
stems from its processing foothold in the online lottery business, new product
introductions, such as QuikTicket and TableXchange, and GCA’s ability to utilize
a strong balance sheet/free cash flow to prove out tuck-in, accretive acquisitions -
ahead of something potentially more transformative longer-term.
Citi's top gaming stock for 2014
With the bullish report, Citi upgraded its rating on MGM and Wynn. However, there is one company that it has singled out as a top performer: Melco Crown (NASDAQ: MPEL ) . The analysts believe the investor community has not realized the company's importance in Macau, nor its international opportunities in other Asian markets such as Japan and the Philippines. Additionally, Studio City, Melco Crown's newest Macau property, is said by the Citi analysts to be the best located casino on the Cotai strip.
With high valuations, and growing Price to Earnings among the well known names such as Sands and Wynn, Melco Crown is still not the cheapest of the competitors. With a P/E multiple of 37, it is more expensive than Sands at 29, and Wynn at 31. However, Citi provides a 2015 estimate that would put Melco Crown trading at 12 times its EV/EBITDA multiple, which would be the lowest of the group according to their similar estimates.
MPEL is also Sterne Agee's top pick with a PT of $57. They also cite MPEL's price discount to peer's, made larger when considering what is in the pipeline for 2014-15.
This is one of the better plays in addressing the needs of the sub-prime market. They have deep pockets and great connections behind them. I also like JGW.
Raising full year market estimate to +16% from +14%; Month-over-month for March may be different than previous years
February Macau gaming revenue ended at MOP38.0b, or +40.3%. Results exceed October CY13’s all-time monthly record by ~4%. For the first two months of the year, Macau gaming revenue is +23.7% YoY. We are raising our full year Macau gross gaming estimate to +16% from +14%. Our March gaming revenue estimate is MOP36.8b or +18% YoY.
Over the past 9 years, March gross gaming revenue has averaged 10.2% better than February – but the month-over-month result varies widely from +29% to +1%. Last year, March exceeded February’s result by 16%. However, our March estimate calls for negative 3% growth from February 2014.
March 2014 may buck historical month-over-month trends. March 2014 factors include a significantly higher month-over-month base comparable; likely less pent demand up VIP demand post Chinese NY (given the January 31 start date versus February 10 of last year – many VIPs avoid the CNY crowd, and head to Macau after the holiday subsides); and a potential VIP cooling effect with the National People’s Congress March 5 (local Government debt a top issue). From a YoY perspective, March 2013 VIP hold was +~3.4%, versus baccarat theoretical hold of ~2.85% - last hold averaged 3.1%. As a fun side-note, the Rolling Stones play March 9, at the Cotai Arena this year.
Buyers short-term and long-term. Given the likelihood of upward consensus revisions for Macau names to match stronger-than-expected market pace, most Macau stocks are “cheaper” than they appear today. In our view, consensus revisions will also meet with multiple expansion over time given infrastructure catalysts and growth not seen in other consumer categories.
Market Share. According to our checks, table-only market share through February 23 is: SJM at 22.0% (vs. estimated January total share of ~23.0%), Galaxy at 21.5% (vs. ~20.2%), LVS at 25.0% (vs. ~21.8%), MPEL at 12.2% (vs. ~14.5%), WYNN at 10.9% (vs. ~9.2%), and MGM at 8.4% (vs. ~11.5%).
David Bain at Sterne Agee included this in his last earnings note on MPEL.
Valuation. With both City of Dreams, Manila and Macau Studio City (halfyear)
included into CY15 estimates, MPEL trades at 13.1x EV/EBITDA, well
below peers – LVS ($78.79, Buy) and WYNN ($221.28, Neutral) at 15.5x, 18.3x,
respectively. Based on its pipeline and weighting to mass/premium mass gaming,
we do not believe MPEL’s discount to peers should exist. Our price target goes to
$57 from $54 based on our sum-of-the-parts valuation.
Once the rest of the investment community catches up with what these guys are saying the result is going to be multiple expansion along side earnings estimate bumps. Bain is already above $1.80 for 2015 without including increases for COD Manila or MSC so it's reasonable to make the assumption real EPS will exceed $2. When putting a multiple on the stock one should consider the growth track beyond 2015 which at a minimum includes a new casino in Macau and beyond that the possibility of expansion in to Japan. And don't forget a rising dividend payout since it is pegged to 30% of what will be steadily increasing income.