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A Not-So-Grand Opening in Macau

By Jeff Hwang - Updated Nov 15, 2016 at 12:14AM

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Melco opens the Crown Macau casino, short a full complement of VIP gaming tables and the hotel.

I suppose it's true that Disney World didn't open without a hiccup. And in contrast to Jurassic Park -- well, at least Melco PBL Entertainment (NASDAQ:MPEL) got there. That's the good news.

And then there's the rest of it.

Tuesday morning, Melco reported first-quarter earnings, and most of the numbers are inconsequential. The big story is an update about the opening May 12 of the company's first casino, the six-star Crown Macau. The problem is that, in addition to the construction delays and cost overruns, the property opened with only 26 VIP gaming tables, with the other 54 planned VIP tables due within the next month. Meanwhile, the hotel apparently is either not open at all or just not yet complete; Melco said in its earnings release that it expects to have 60 rooms ready within three weeks, with 216 rooms complete by the end of July.

The Crown already suffers from a relatively remote location away from Macau Peninsula and north of the development on the Cotai Strip. And while this is supposed to be the market's high-end property to compete with Wynn Resorts' (NASDAQ:WYNN) Wynn Macau, you would think it would be a little difficult to compete for VIP business without operational VIP facilities. Also, while all of the 142 mass-market tables were available, only 479 of the eventual 550 gaming machines were in operation when the casino opened.

Melco also has the City of Dreams project due for the mass-market Cotai Strip in late 2008. It will include four hotels, including a Hard Rock hotel, Crown Towers, and two Hyatt-branded hotels. The obvious concern is how much more this is going to cost and whether the opening of the first phase of the flagship project will be delayed into 2009 (or how much of the project will actually be open when it opens). The company has a third project on the Macau Peninsula that will target the day-trip market, with a projected mid-2010 opening.

I have to admit to taking a bit of a gamble on Melco, though it is less than 2% of my portfolio. The safer bet would be MGM Mirage (NYSE:MGM), and the bigger bet might be Las Vegas Sands (NYSE:LVS). However, as the smallest player and with a key Cotai Strip location, Melco may have the most upside. That said, I think the big picture remains true: When the initial build-out of Macau is basically complete sometime in 2010, there will be limited competition in the form of six concessionaires competing for the biggest gambling pie in the world.

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Fool contributor Jeff Hwang owns shares of Melco PBL. The Motley Fool has a disclosure policy.

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