Melco Crown

Jefferies on Melco Crown

	Column 1
0	Melco Crown Entertainment (MPEL): 2Q EBITDA Missed; Time to Play the New Opening; Reiterate Buy
1	Rating BUY Price Target $27.20 Price $21.49
2	Key Takeaway 2Q adjusted property EBITDA was US$205mn, inline with JEFe but missed consensus by 6%; mainly due to lower win rate in premium mass. COD Manila started to contribute; benefiting from junket support. Studio City set to open on Oct 27, should be a catalyst, time to play the theme. Reiterate Buy. 2Q EBITDA missed. Net revenue was US$917mn, down 24% yoy or 13% qoq. Adjusted property EBITDA was US$205mn, down 35% yoy (or 19% qoq), missed consensus by 6%; mainly due to lower win rate on premium mass (~$20mn impact on EBITDA). Net profit was US$24mn dropped 60% qoq; due to high pre-opening costs and D&A. Dividend announced at US$1.3 cents/ADR, representing a 30% payout ratio. Macau business better than the market. The total VIP GGR dropped 42% yoy, inline with the market. Mass declined 22% yoy, better than the market, but the win rate dropped to 30.4% from 34.6% in 2Q14. The total market share in Q2 expanded to 14.4% from 12.7% in 2Q14. Property wise, City of Dreams outpreformed the market with net revenue down 32% yoy (vs. -37% in total GGR). Manila starts to contribute. CoD Manila contributed $12.6mn in EBITDA vs. 2.9mn in 1Q. (opened on Feb 10, 2015). Revenue and EBITDA improved 42% and 335% sequentially, benefiting from junket support. They will sign one more junket in late August which will accelerate the ramp up of the casino. Studio City will open on Oct 27. Studio City is the next mile-stone casino in Macau which unveiled the opening date as Oct 27. Studio City will add 1,600 hotel rooms, a 5,000 seat entertainment centre and a TV studio to its portfolio. MPEL only holds 60% of the stake of Studio City, which makes it not able to relocate tables from other 100% owned casinos. The property is capable of housing 400 tables, but we believe any number above 150 (in inline with Galaxy Macau II) initially could be a positive surprise. Revise earnings and reiterate Buy. We largely maintained our EBITDA numbers but cut earnings estimates by 19% on average in 2015 & 16 to factor in a low earnings in Q2 and higher opening cost in the 2H. Target price of US$27.2 implies 16x 2015E EV/EBITDA, lower than the historical average. Studio City opening is a positive catalyst, maintain Buy. Valuation/Risks Our price target is US$27.2, based on sum of the parts valuation method. Key risks are 1) lower than expected GGR growth; and 2) intensifying competition.