Melco Crown Entertainment(MLCO)was an incredible growth story in recent memory as its near-complete bet on Macau paid off big during the spectacular rise of the Chinese gaming enclave. Unfortunately for Melco Crown and its investors, Macau gaming revenue has declined drastically in the last year as Chinese President Xi Jinping tries to stamp out corruption among high net worth individuals and government officials in the country. Melco Crown shares fell 35% in 2014 and have slipped another 20% year-to-date.
However, the company has placed bets on another country that could be the next long-term winner: the Philippines.
Macau takes a turn for the worse
When 2013 ended, total Macau gaming revenue was up nearly 20% for the year, and companies with the biggest investments in the region made incredible gains. Melco Crown was the company with the highest percentage of its total revenue tied to Macau. The company did well on that substantial wager, and with a massive new resort to be finished later this year, investors could not have been happier.
Then came the massive decline in gaming revenue during the summer of 2014. While every company operating in Macau has struggled since, many of them had sufficient bets in other regions to help balance the scales. For example, Las Vegas Sands leaned on its U.S. and Singapore operations.
The recently opened City of Dreams Manila
Diversifying into other regions could likewise provide additional long-term growth and reduce risk for Melco Crown. And that is exactly what the company is pursuing with the City of Dreams Manila, which had a soft opening last December and formally opened to the public in February.
City of Dreams Manila. Photo: Melco Crown
The City of Dreams Manila largely resembles the City of Dreams resort in Macau with opulent casinos, world-class dining, and multiple hotels. The resort sets itself apart from the other two major casinos nearby as a more premier leisure destination with hotels, entertainment, and other amenities that the company hopes will attract not only local players but international visitors as well.
Why the Philippines?
There are gaming opportunities in Asia other than Macau, but most of them are a distant hope rather than a realistic bet. Japanese legislators have teased gaming companies with the possibility of legalization in the country, but so far to no avail. The same is true with South Korea opening its gaming market further -- at the moment, it is too restrictive to make room for any major company to open a profitable integrated resort there. Singapore has been a highlight for Las Vegas Sands, but the government holds tight control of the industry and only allows two casinos in the country, capping off any additional opportunities.
However, the Philippines is looking to increase gaming to boost overall tourism. The island country makes sense as another bet for gaming companies in the region, with an already booming tourism industry and easy access to Manila from other major cities around Asia.
Small now but could be a great bet for a future boom
Last year, Bloomberg analysts estimated the value of the Philippines gaming market at a modest $2 billion, about a third of that of Singapore and far less than Macau even during its rapid decline (about $40 billion last year).
However, the gaming industry in the Philippines grew 16% in 2014. According to research from Macquarie, that growth could increase to 20% over the next three years, making the Philippines a nearly $5 billion gaming industry by 2018.
There is clearly high demand for gaming in Asia, as illustrated by the rapid explosion of gaming in Macau and Singapore and the surge of interest in Japan, South Korea, and elsewhere. For Melco Crown and other resorts making an early bet on the Philippines, this could be the next high-growth market with long-term potential.
