Melcro Crown: How Macau Is An Earnings Haven (MPEL, WYNN, LVS)

There is a trend happening about gambling in Asia, and it no longer just involves Asian businessmen flying to Las Vegas.  This is about Macau, and the pure-play for Macau is Melco Crown Entertainment Ltd. (NASDAQ: MPEL).

The Macau casino has already migrated from the development stage to the revenue stage of its business, and shareholders are getting more and more used to the company reporting positive earnings each quarter.

Melco Crown’s revenue in the second quarter of 2011 was $960.0 million, up 67% from a year earlier.  The company even reported positive earnings on GAAP basis of $0.13 EPS (or $66.7 million) versus a loss of -$0.06 EPS (or -$30.1 million) a year ago.

Here is what is driving the gains… “improved rolling chip volumes, normalized rolling chip win rates at City of Dreams, continued strong growth in mass market and hotel operations at City of Dreams, as well as contributions from other non-gaming amenities such as The House of Dancing Water and Club Cubic.”

What is interesting about Melco is that its $6+ billion value makes it far smaller than Macau (and Vegas) rivals Las Vegas Sands (NYSE: LVS) for its Sands China and Wynn Resorts Ltd. (NASDAQ: WYNN) for its Wynn Macau.  Analysts spent much of July chasing the shares higher and higher with price targets and the $15.55 consensus price target from Thomson Reuters is actually low considering the upgrade cycle seen in the last six-weeks.  Shares peaked at $16.15 this year and now the stock is back to $12.10 after a 3.5% gain today.

Another interesting development is that Melco Crown applied for a dual-listing with the Hong Kong stock over the last month.

Melco Crown operates three casino projects in Macau and it recently completed the acquisition of a 60% interest in the Studio City project on Cotai, which is aimed to expand its current portfolio of gaming assets in Macau.

So, the big question is how the analysts will treat Melco CRown in the coming days.  They were stepping all over each other to raise their targets earlier this summer.  The stock slid almost 20% before earnings in just the last few days, mostly due to fears that Asian businessmen would crimp their gambling budgets as times get a little less fruitful.

Our take is that no one is immune, but our take is also that Macau still has ample room for growth.  Macau has come along way from what was left over of the Portuguese colony.  Investors are looking for “haven investments” that offer either growth or income (or both).

It is too soon to ask for Melco Crown to pay a dividend and casinos have historically not been big dividend outlets for investors.  Still, Macau has enough room for growth ahead of it that this may still represent a haven for investors.

JON C. OGG