GGRAsia – Crown downsize a positive for MPEL: analyst

Crown downsize a positive for MPEL: analyst

Mar 21, 2017 Newsdesk Latest News, Macau, Top of the deck

The removal of the “Crown overhang” from Asian casino operator Melco Crown Entertainment Ltd would be a “positive” said a Monday note from the Buckingham Research Group Inc.

Nasdaq-listed Melco Crown – also known by its stock ticker name MPEL – confirmed to GGRAsia in an email on March 14 it would be changing its name to Melco Resorts and Entertainment. It follows a series of sell downs by Australian casino firm Crown Resorts Ltd regarding the latter’s holding in Melco Crown.

The current main shareholder in Melco Crown – Hong Kong-listed Melco International Development Ltd – must share the economic benefit of Melco Crown operations with Crown Resorts, which currently maintains an 11.2-percent stake in the Melco Crown venture.

“Continued improving GGR [gross gaming revenue] trends in the broader Macau market, lower the downside risk from competitive pressures on MPEL’s primary Macau asset, City of Dreams Macau [pictured],” said Buckingham Research analyst Christopher Jones. “While we think the competitive pressures will persist for the next two years, for now, they are offset by a growing market,” he added.

Industry commentators in Australia had suggested that the Crown Resorts brand had been damaged in the China market following a series of October raids and detentions – targeting Crown Resorts staff in China – by the authorities there, on suspicion of “gambling-related crimes”.

Shortly after the raids become public knowledge, Lionel Leong Vai Tac, Macau’s Secretary for Economy and Finance, told local public broadcaster TDM that the action against Crown Resorts on the mainland was not expected to have any direct bearing on gaming firms operating in Macau.

In other developments in the Macau market, JP Morgan Securities (Asia Pacific) Ltd said in a note that based on the first 19 days of March – and on its own “channel checks” – it estimated “VIP demand growth is accelerating to about 20 percent year-on-year (i.e., the top-three junkets are growing 30 percent-plus, likely offset by slower growth from smaller junkets)”.

Analysts DS Kim and Sean Zhuang added: “Mass is growing healthily, albeit less exciting than VIP, at high-single-digits, to 10 percent.”

Brokerage Sanford C. Bernstein Ltd said in a Monday note that it was raising slightly its estimates for Macau’s March casino GGR year-on-year growth, “to factor in new information”.

The institution’s analysts Vitaly Umansky, Zhen Gong and Yang Xie now anticipate such GGR to expand by approximately 10 percent to 12 percent year-on-year – compared to its previous estimate of 9 percent to 11 percent. Its new forecast is for total March GGR in the range of MOP19.8 billion (US$2.48 billion) and MOP20.1 billion.

A Thursday note from Morningstar Inc said it expected a Macau government-proposed new regime for casino smoking – including introduction by January 2019 of smoking lounges in VIP areas, rather than the tableside smoking that had been allowed in VIP rooms in casinos opened prior to 2016 – would have a modest effect on casino GGR.

Referring to an earlier government proposal that would have seen casino smoking banned entirely, Morningstar analysts Chelsey Tam and Dan Wasiolek wrote, referring to Macau casino stocks: “Our current forecasts… already factor in a negative mid-single-digit percentage point impact to VIP play in 2018, and postponing that one year is not expected to have any significant impact to our fair value estimates.”