Melco Crown Entertainment Ltd (NASDAQ: MPEL)

Melco Crown Entertainment Ltd. (MPEL) is a developer and owner of casino gaming and entertainment resort facilities that are focused on the Macau market. MPEL, through its subsidiary Melco Crown Gaming (Macau) Ltd., is one of only six companies licensed, through concessions or sub-concessions, to operate casinos this booming southern China gambling enclave. MPEL currently operates Altira Macau (www.altiramacau.com) (formerly Crown Macau), a casino hotel located at Taipa, Macau and City of Dreams (www.cityofdreamsmacau.com), an integrated urban casino resort located in Cotai, Macau. The Company’s business also includes the Mocha Clubs (www.mochaclubs.com), which feature a total of approximately 1,500 gaming machines in eight locations and comprise the largest non-casino based operations of electronic gaming machines in Macau.

The Company was formerly known as Melco PBL Entertainment (Macau) Ltd. and changed its name to Melco Crown Entertainment Ltd. in May 2008. MPEL was incorporated in 2004 and is based in Central, Hong Kong.

Source: Reuters.com, SEC Filings.

Financial Summary

For the third quarter of 2009, MPEL posted net revenue of $500.3 million, an increase of nearly 70% from $295.2 million for the comparable period ending September 30, 2008. The increase in net revenue was driven by the opening of City of Dreams in June 2009.

Adjusted EBITDA was $55.6 million for the third quarter of 2009, as compared with $20.8 million in the third quarter of 2008. The 167% year-over-year increase in adjusted EBITDA in the third quarter of 2009 was primarily attributable to the opening of City of Dreams.

On a GAAP basis, the Company recorded a net loss for the third quarter of 2009 of $39.5 million, or 8 cents per ADS, compared to a loss of $21.1 million, or 5 cents per ADS, in the third quarter of 2008. The year-over-year increase in the net loss was primarily due to increased depreciation and amortization expenses and lower capitalized interest following the opening of City of Dreams.

For the quarter ended September 30, 2009, net revenue at City of Dreams was $287.7 million and adjusted EBITDA was $46.6 million. Rolling chip volume totaled $9.0 billion for the third quarter of 2009 and mass market table games drop (non rolling chip) totaled $390 million. Slot handle was $285 million.

Total non-gaming revenue at City of Dreams in the third quarter of 2009 was $18.0 million. Occupancy per available room in the third quarter of 2009 was 92% and the average daily rate (ADR) was US$166 per occupied room.

For the quarter ending September 30, 2009, net revenue at Altira Macau was $182.6 million versus $266.3 million in the quarter ending September 30, 2008. Altira Macau generated adjusted EBITDA of $13.9 million in the third quarter of 2009 compared with $20.5 million in the third quarter of 2008.

Rolling chip volume totaled $9.8 billion for the third quarter of 2009, down from $14.2 billion in the third quarter of 2008. In the mass market table games segment, drop (non rolling chip) totaled $56.4 million in the third quarter of 2009, down from $91.2 million generated in the third quarter of 2008.

Total non-gaming revenue at Altira Macau in the third quarter of 2009 was $7.9 million, down from $9.6 million in the third quarter of 2008. Occupancy per available room in the third quarter of 2009 was 93% and the average daily rate (ADR) was $215 per occupied room. This compares with occupancy and ADR of 95% and $238, respectively, in the third quarter of 2008.

The combined rolling chip table games hold percentage (calculated before discounts and commissions) across City of Dreams and Altira Macau in the third quarter of 2009 was within our expected rolling chip hold percentage range of 2.7% to 3.0%. The company-wide mass market table games hold percentage (non rolling chip) in the third quarter of 2009 was 15.7%, which is slightly below our target hold percentage range of 16.0% to 18.0%.

Net operating revenue from Mocha Clubs totaled $24.4 million in the third quarter of 2009, up from $24.2 million in the third quarter of 2008.

Mocha Clubs generated $6.3 million of adjusted EBITDA in the third quarter of 2009, which compares with $6.7 million in the third quarter of 2008.

The number of gaming machines in operation at the Mocha Clubs averaged approximately 1,547 in the third quarter of 2009, an increase from an average of 1,029 in the third quarter of 2008. The net win per gaming machine per day was $168 in this period, as compared with $252 in the same period in 2008.

Source:  Melco Crown Entertainment Ltd.

Source:  http://www.reuters.com/finance/stocks/financialHighlights?symbol=MPEL.O

Analyst Consensus

This is the consensus forecast amongst 12 polled investment analysts. Against the Melco Crown Entertainment Ltd company.

The 11 analysts offering 12 month price targets for MPEL have a median target of $4.60, with a high estimate of $8.50 and a low estimate of $3.04. The median estimate represents a 28.49% increase from the last price of $3.58.

Source: markets.ft.com

Consensus Estimates Analysis

Source:  http://www.reuters.com/finance/stocks/financialHighlights?symbol=MPEL.O

Investment Highlights

MPEL owns and develops casino gaming and entertainment resort facilities that are focused on the rapidly expanding gaming market found in Macau, a former Portuguese colony off the Southern coast of China in Far East Asia. It is one of only six companies authorized to run casinos on the island (others include Wynn, Las Vegas Sands and MGM).

Properties

Altira Macau (formerly Crown Macau) is a luxurious and contemporary hotel and casino delivering a world-class experience. It offers one of the most exclusive and elegant accommodations in Macau, providing the ultimate in fine dining and attracting discerning, high-end gaming patrons.

City of Dreams is combines entertainment, nightclubs, an array of accommodation options, dining, designer brand shopping as well as a casino. The initial phase opened on June 1, 2009. When fully opened, City of Dreams will offer approximately 2,200 guest rooms and a wide range of restaurants and bars.

MPEL also offers Mocha Clubs, providing instant electronic gaming fun. With eight Mocha Clubs already in operation throughout Macau and Taipa, Mocha Clubs offer machine-based gaming entertainment in a cafe-style setting.

Macau’s Rapid Growth

MPEL focuses solely on Macau gambling which has enjoyed an unprecedented economic boom following the decision by the Macau government to deregulate its 40-year old gaming industry in 2002. Macau overtook Las Vegas at the top of the global gaming in 2006 when its gaming revenues surged 23% year-on-year to $6.87 billion. In 2007, Macau’s gaming revenues reached $10.4 billion, a 46.6% increase over the previous year. From 2003 to 2008, Macau’s gaming revenue has increased at a five-year CAGR of 29.4% as compared to five-year CAGRs of 5.3% and 0.0% for the Las Vegas Strip and Atlantic City, respectively.

Having weathered the global financial crisis and the slump triggered by China’s visa restrictions, Macau reported a 48% increase in gambling revenue for the month of December compared to the same period the year earlier.

A recent report from The Sydney Morning Herald said MPEL is seeking to regain its share as Macau’s gaming market returns to the double-digit growth not seen since the global financial crisis started.

According to the newspaper, MPEL is in fourth position with 12.5%, behind Stanley Ho’s  SJM with 30% of the market revenue, followed by the U.S. giants Sands and Wynn with 23% and 15% respectively. According to the report, the Company will have to fight to maintain its share and aggressively offer discounts and commissions if it wants to return to its peak of 19% reached in 2008. The newspaper report that City of Dreams casino is giving away prizes to lure visitors during the Chinese New Year period next month.

Last month, analysts raised concerns about MPEL’s short-term profitability due to changes in the way the Company was running its Altira casino. CLSA Asia-Pacific Markets analysts Aaron Fischer and Huei Suen Ng were quoted as saying: “While changes in the way Melco Crown was running its Altira casino might increase earnings “over the medium term,” the Company’s earnings would be hurt as it shifted from its “super junket arrangement” to dealing directly with junket operators. The analysts downgraded their Q4 earnings estimate for MPEL’s Q4 earnings to $6 million from $65 million.

MPEL has announced it will file its Q4 results for 2009 on Form 6-K with the U.S. Securities and Exchange Commission on February 2, 2010, to be followed by a conference call on the same day at 8:30 a.m. Eastern Time ( 9:30 p.m. Hong Kong Time).

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=mpel

MPEL is below its 13 day moving average. This bearish sign is even more significant because the moving average is also trending lower.

MPEL has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally,  MPEL is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

The MACD for MPEL currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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