MPEL: STREET FINALLY MOVING UP

Unfortunately, we are coming down for Q1. Low VIP hold will drag down margins disproportionately despite strong top line.

Our issue with MPEL’s Q1 can be considered cosmetic.  Not that we are suggesting a miss, but we are no longer predicting a big beat.  The ongoing takeaway is actually quite positive.  Volumes were strong in Q1 as were revenues and if sustainable, MPEL should blow away estimates going forward, assuming normal hold.  However, because VIP hold percentage was very low, it affects EBITDA disproportionately.  Essentially, MPEL primarily maintains rolling junket commission structures which are based on volumes not revenue share.  Hold risk stays with MPEL.  Of course, with strong hold, MPEL captures the upside.

Despite having better than expected volumes on the VIP side, luck was not on MPEL’s side this quarter.  While we knew that the hold percentage wasn’t great for the first two months of the quarter, March’s luck was simply terrible.  Therefore, what we believed would be a blow away quarter now just looks like consensus.  That said, luck comes and goes, but volumes are a much better predictor of a companies’ health and on that front, MPEL continues to exceed our expectations.  Unfortunately, given the recent run up in the stock and investor concerns about the impact of Galaxy Macau, a meet may not be good enough this quarter. 

We estimate that MPEL will report $788MM of net revenue and $125MM of EBITDA in 1Q2011.

CITY OF DREAMS


We are projecting net revenue of $487MM and EBITDA of $89MM.  Our revenue estimate is 2% ahead of consensus, but our EBITDA estimate is 6% lower than the Street’s.

  • Net casino win of $466MM (gross win of $644MM)
  • Net VIP table win of $284MM
    • We assume 18.5% direct play, $19.9BN of RC volume (a massive 102% YoY increase), 2.33% hold and a 90bps rebate rate
    • We estimate that in March, CoD’s VIP hold plunged to just 1.9%.  Given that most of the CoD’s junkets get compensated based on RC volume vs. RevShare, flow through and EBITDA margins are very sensitive to win rates.
    • We estimate that low hold impacted CoD net revenues by $100MM and EBITDA by $40-50MM
  • Mass table win of $143MM
    • Mass drop of $680MM (up 42% YoY) and hold of 21%
  • Slot win of $38MM
    • $653MM handle and slot win of 5.85%
  • $21MM of net non-gaming revenue
  • Variable costs of $321MM ($251MM of gaming taxes and $60MM of incremental junket commissions)
  • $17MM of non-gaming expenses
  • $60MM of fixed expenses

ALTIRA


We estimate that Altira will report net revenue of $268MM and EBITDA of $45MM, 3% and 2% ahead of Street estimates, respectively.

  • Net casino win of $268MM (gross win of $382.5MM)
  • Net VIP table win of $248MM
    • $12.7BN of RC volume (28% YoY increase), 2.85% hold and a 90bps rebate rate
  • We estimate that in March, Altira’s VIP hold dropped to 2.7%
  • Mass table win of $20.5MM
    • Mass drop of $117MM (up 65% YoY) and hold of 17.5%
  • Variable costs of $198MM ($149MM of gaming taxes and $45MM of incremental junket commissions)
  • $22MM of fixed expenses

MOCHA


Mocha slot revenue of $33MM and EBITDA of $9MM