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.