"Since 2002, Macau has become a gambling mecca like no other, even Las Vegas" says
Jim Trippon, who looks at Melco Crown Entertainment (NASDAQ: MPEL).
In
The China Stock Digest he explains "Simply put, the Chinese love to gamble, and the combination of their new freedoms and new wealth have uncorked a gusher of revenue." Here is his review.Melco has delivered industry-beating earnings growth in the booming Macau gaming, entertainment, and hospitality industries.
"The company’s recent reorganization has lifted it from a loss to profitability. Net revenue for the first quarter of 2008 was $482.9 million, up from $179.8 million in the fourth quarter of 2007. That’s a 267% jump!
"Net income for the first quarter of 2008 was $43.2 million, compared with a net loss of $36.5 million in the fourth quarter of 2007.
"In a few short months the company’s key asset, Crown Macau, has become the busiest casino in the world in gaming volume.
"Macau’s government announced in April that it would rein in the booming gaming industry by halting the issue of new licenses and by freezing land allocations for the construction of more casinos.
"This is a huge boon to the companies that own existing licenses. Macau currently allows six companies to operate 29 casinos in the enclave. In short, future competition has been blocked.
"Melco has achieved its exciting profitability growth at a time when it’s engaged in a rapid and highly innovative expansion program with a second casino project under development called the City of Dreams; the first phase of this project is due to open by the end of March 2009.
When fully opened, the City of Dreams will offer approximately 2,200 guest rooms. Visitors will not only enjoy a wide range of restaurants and bars but also entertainment options that include free attractions.
"The company also has ambitious plans for a yet-to-be-named hotel-casino complex on the prime real estate of the Macau peninsula.
"Melco Crown Entertainment is richly priced with a P/E multiple estimated at more than 50x, but that figure is still cheaper than the industry standard and well below the multiple of Las Vegas Sands.
"The stock is well below its 52-week high of $19.09. We believe the company’s performance and potential have not yet been recognized by the markets. MPEL is a buy with a target price of $20."
