Melco Crown (MPEL +2.52%) is making progress in living up to the lofty expectations investors have set over the stock's recent run-up. First-quarter earnings released this morning showed an 11% increase in revenue during the first quarter to $1.14 billion and a 13% increase in EBITDA to $242.5 million.
It's no surprise that City of Dreams continues to drive results. Revenue at the resort jumped 16.6% during the quarter to $836 million, and EBITDA was up 24.7% to $246.9 million. This slightly outperformed The Venetian Macau, Las Vegas Sands' (LVS 0.65%) flagship property on Cotai.
Cotai continues to be the growth engine of Macau. The Macau Peninsula, where Wynn Resorts (WYNN 3.98%) and MGM Resorts (MGM 2.60%) are located, have been holding steady but the growth is on Cotai, and that's why investors are willing to pay a premium for Melco Crown and Las Vegas Sands.
|
Resort |
Location |
Y/Y Revenue Growth |
Y/Y EBITDA Growth |
|---|---|---|---|
|
City of Dreams |
Cotai |
16.6% |
24.7% |
|
Altira |
Taipa |
1.6% |
-27.2% |
|
The Venetian Macau |
Cotai |
12.9% |
23.6% |
|
Wynn Macau |
Macau Peninsula |
4.4% |
14.1% |
Source: Company earnings releases.
Strong rolling chip growth of 24% drove the results although a hold percentage of 2.7%, at the low end of the 2.7% to 3% range, held back even better results. It's clear that Melco is taking share from Wynn and even MGM Resorts and right now it's even outperforming The Venetian Macau on Cotai.
Future growth
Melco Crown has two major projects that mark the next phase of growth. On Cotai it is building Studio City, which will probably open in 2016. It's still unclear if the resort will be allowed table games, but Melco Crown is certainly counting on it. The resort will be at the south end of the Cotai Strip and will come online as The Parisian from Las Vegas Sands, MGM China's resort, and a Wynn resort are finished. This is the biggest potential growth driver the company has in the future.
In Manila, the company has a joint venture that will open a 967 room, 242-table game resort in 2014. It's still unclear how much this will add to profitability, but Melco Crown hasn't had to put a lot of its own cash into the project after a $325 million stock sale in the Philippines.
Buyer beware
The only word of caution for Melco Crown investors is that you're paying a steep price for the company today. Melco's enterprise value/EBITDA is 15.4, at the tops of the industry. This is by no means a value and Melco will have to perform flawlessly to live up to priced-in expectations. This was a very nice quarter, but I don't think the stock is a buy given the price.
