Investment bank JP Morgan Securities Australia Ltd revised downward its price target for Australian casino operator Crown Resorts Ltd after its Macau-based joint venture Melco Crown Entertainment Ltd on Thursday announced a 21-percent profit drop in year-on-year terms for the second quarter of 2014.
Analyst Matthew Ryan wrote in a note issued on Friday that JP Morgan revised its price target for Crown to AUD16.35 (US$15.15) from AUD16.65. The investment bank also reduced its earnings per share (EPS) forecasts for Crown.
“Following Melco Crown’s 2Q14 results, we are trimming our 2H14 and 2015 estimates to reflect our expectation of continued weakness in VIP trends for the remainder of the year, a moderation of go-forward mass market growth assumptions, and labour expense related opex [operating expenditure] increases, and their corresponding effect on EBITDA [earnings before interest, taxation, depreciation and amortisation] margins,” Mr Ryan wrote.
Crown, headed by Australian billionaire James Packer (pictured), is one of the two controlling shareholders of Melco Crown. The other is Melco International Development Ltd, controlled by Lawrence Ho Yau Lung. Each party has a stake of around one third in Melco Crown.
“Despite volatility in Macau, we continue to see potential upside” in Crown, Mr Ryan said. “We estimate that the combination of a strong cost performance in Australia and ongoing strength in Macau will result in strong EPS growth for Crown over the next three years,” the analyst stated.
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Analysts at Morgan Stanley