Melco Crown Entertainment Limited (MPEL) posted third-quarter 2014 results, wherein both earnings and revenues missed the Zacks Consensus Estimate owing to a sluggish environment in Macau. The company earns a better part of its revenues from Macau. Despite weak results, share price of the company inched up 0.4% during aftermarket trading hours, possibly due to the fact that investors see some strength in the mass market.
Melco Crown’s third-quarter 2014 adjusted earnings of 28 cents per share missed the Zacks Consensus Estimate of 29 cents by a penny. Further, earnings declined from the year-ago figure of 33 cents by 15%. The downside reflects lower-than-expected revenues.
In the quarter, net revenue declined 10.3% year over year to $1.12 billon and also missed the Zacks Consensus Estimate of $1.15 billion by 1.8%. The sales declined in all the segments, due to lower group-wide rolling chip revenues, partially offset by improved mass market table games revenues.
Adjusted Property EBITDA was $305.7 million, down 10% year over year, attributable to lower group-wide rolling chip revenues and rolling chip win rate, partially offset by growth in the mass market table games segment.
The downside in the numbers reflects a slowdown in Macau gambling growth as a result of high-stake gamblers curtailing spending amid a cooling Chinese economy. Also, it comes in the wake of a nationwide crackdown on corruption in China that compelled Macau officials to impose restrictions on high rollers in order to stop billions of dollars from being siphoned off illegally from mainland China to Macau.
Segment Operations
The company’s three existing operations include — City of Dreams, Altira Macau and Mocha Clubs.
Net revenue at City of Dreams was $911.6 million, down approximately 5% year over year. Adjusted EBITDA of $276.0 million in the third quarter of 2014 declined 8% from the year-ago quarter. The decline was primarily due to lower rolling chip volume and rolling chip win rate, partially offset by growth in mass market table games drop and improvement in mass market table games hold percentage. Rolling chip volume totaled $17.3 billion, down 24.1% year over year. Mass market table games drop was $1,340.4 million, 10% year over year.
Net revenue at Altira Macau was $160.4 million, down 33.8% year over year. Adjusted EBITDA of $20.3 million in the reported quarter was down approximately 32% year over year, primarily due to lower rolling chip revenues. Rolling chip volume totaled $7.2 billion, down 33.3% from the year-ago quarter. Mass market table games drop was $181.4 million, down 0.3% year over year.
Net revenue from Mocha Clubs totaled $38.5 million, down 0.2% year over year. Adjusted EBITDA of $9.9 million declined 11% from the year-ago quarter.
Meanwhile, its other two projects, City of Dreams Manila and Studio City are set to open later in December and mid 2015, respectively. The company incurred $29.8 million as operating expenses in the third quarter of 2014 at City of Dreams Manila, related to pre-opening costs, property charges as well as share-based compensation cost. Adjusted EBITDA was $27.0 million, compared with a negative $73.0 million in the year-ago quarter. Studio City reported negative EBITDA of approximately $0.50 million versus negative EBITDA of $0.31 million in the year-ago quarter.
Our Take
A weak operating environment in Macau resulted in dismal results for the second consecutive quarter for this casino operator. The situation is not expected to improve in the near term. The imposition of a ban on smoking in casinos as well protests in Hong Kong would further worsen the situation. Other companies that are also bearing the brunt of a weak gambling business in Macau include Las Vegas Sands Corp. (LVS), Wynn Resorts Ltd. (WYNN) and MGM Resorts International (MGM).
Melco Crown currently carries a Zacks Rank #5 (Strong Sell).
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