Melco Crown Making Expansion Plans

The build-out of Macau's gaming infrastructure has taken place at a fast and furious pace over the past five years, but with the opening of Las Vegas Sands' (NYSE: LVS  ) Sands Cotai Central, there will be a lull in resort openings in Macau for the next few years. There are a very limited number of resorts expected to be approved as the government controls supply and as a result operators with the balance sheet to expand have to look elsewhere for growth.

MGM Resorts (NYSE: MGM  ) is trying to expand its brand outside of gaming in locations like Dubai. Caesars Entertainment (Nasdaq: CZR  ) will likely have to sit out the next expansion phase to work on its balance sheet. Las Vegas Sands has its sights set on Spain, a country in desperate need of economic activity. Wynn Resorts (Nasdaq: WYNN  ) is building a resort in Macau and attempting to find areas for growth in the U.S. But one player is flying under the radar in a quest for growth, something that may make it the best buy in gaming right now.

A new market emerges
The Philippines is hoping to build its version of the Las Vegas Strip and developer Belle Corp. was one of four winners of a gaming license there. The problem is that Belle doesn't have gaming experience, so Melco Crown (Nasdaq: MPEL  ) may be brought in to handle at least part of the gaming operation. Leisure & Resorts World was originally supposed to manage the casino and split EBITDA evenly with Belle, but Belle Vice Chairman Willy Ocier said the company has been in talks with Melco to be involved as well.

We don't know exactly what the involvement will be, but if Melco is involved it will likely be pure upside for the company. Most of the $1 billion resort is complete and little capital would be required to manage the gaming section.

The reason this is important now is that on an enterprise value/EBITDA ratio Melco Crown is the least expensive of the major gaming companies at 7.4. It also doesn't carry much debt and has potential upside in Studio City in Macau if gaming tables are approved there.

Melco is often overlooked among bigger rivals but this is quickly becoming a great buy in gaming. There are options for growth and even the company's current operations come at a nice price. We don't know yet what that upside looks like in the Philippines, but it would be meaningful for a company Melco's size.

Interested in reading more about Melco Crown? Click here to add it to My Watchlist, and My Watchlist will find all of our Foolish analysis on this stock.

Fool contributor Travis Hoium manages an account that owns shares of Melco Crown and Wynn Resorts. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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  • Report this Comment On July 08, 2012, at 8:25 PM, cp757 wrote:

    What could be the reason that Las Vegas Sands is not looking at building an Integrated resort in Manila with all the other casino operators. What study did Sheldon Adelson look at that told him to build in other locations. Is his vision better than other operators? I thought about his vision and looked at both areas to think of what the millionaires that will vacation at an Integrated resort will see.

    The climate in Barcelona is classified as a Mediterranean climate with mild winters and warm summers. The warm air from the Mediterranean keeps the city comfortable. Just the city of Barcelona is the 4th richest city by GDP in the European Union at 177 billion. The airport will handle 60 million visitors and they have the 4th largest Cruise Ship port in the world. They also have the second largest high speed rail system in the world at a cost of 60 billion dollars. Adelson will build his 800-hectare gaming complex that is his dream Integrated Resort and it will bring in tens of billions of dollars.

    I guess the answer to this question helps us with the difference in the investment between Las Vegas Sands and the other company's that are going in to Manila. Australian billionaire James Packer and Hong Kong businessman Lawrence Ho, will join forces with the Philippines' wealthiest man, Henry Sy, who controls Belle (BEL.PS) to jointly develop and manage the hotel set to rise in a more than 100-hectare gaming complex. Melco will invest no more than $580 million so its not too big a bet. Three other casino licensees are set to operate in the sprawling gaming area by the Manila Bay, a project of state regulator Philippine Amusement & Gaming Corp, or Pagcor. The biggest of the four projects is Kazuo Okada's $2 billion dollar casino-hotel complex being built by a unit of Japan's Universal Entertainment Corp (6425.OS) set for completion in 2014

    Now one question I had was does Manila have High Speed Rail? No high speed rail but how about a good airport. No the only airport is Ninoy Aquino Internation Airport (NAIA1) in the Philippines and is in Manila. It handles 27 million visitors and has been voted the world’s worst airport. According to travel website http://bit.ly/PqpO4L NAIA fails to satisfy the needs of the passenger when it comes to safety concerns, comfort, and facilities, making it the worst airport of 2011. That is not very good for a millionaire on vacation to have safety concerns. The Philippines has a Gross Domestic Product (http://bit.ly/rxmtrP) of $199.6 billion for all of the country. That is almost the amount of money AAPL will take in 2012. Foreign Direct Investment (http://bit.ly/LEPzJK) is $1.7 billion, which also places the country as “the lowest ranked Asian country on the list." along with Algeria, Ukraine and Venezuela. This is why the Philippines wants to have a gambling resort built in Manila. The main problem besides the worst airport is the climate and pollution. Manila wants more visitors because its hard to get people to Visit. They have temperature's around 80 to 90 degrees every day all year long and at night they go down to the 70 degree range and its very humid. In August they get 16 inches of rain during the monsoon season because they have a tropical monsoon climate. Manila has very bad air pollution in the form of smog which affects 98% of the residents of the city and results in more than 4,000 deaths per year. Open dump sites and industrial waste contribute to increasing pollution within the city. Several rivers in Manila have been considered biologically dead. The Pasig River, where 150 tons of domestic waste and 75 tons of industrial waste are dumped daily according to report's, is now one of the most polluted rivers in the world. I guess Adelsons vision is not that hard to understand.

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