MPEL: REV SHARE VS ROLLING COMMISSION STRUCTURES

It matters when hold is volatile.

We recently cautioned our clients that MPEL may not hit the whisper Q1 EBITDA numbers of over $140 million.  Despite strong top VIP volumes, low hold may crimp margins since at least half of MPEL’s junkets are paid commissions based on volume, rather than revenue.  In these instances, MPEL bears the risk of hold fluctuations.

Currently, we are projecting company EBITDA of $131 million which is actually up from our recent estimate of $126 million but below the whisper expectations and below our previous estimate of $144 million.  We had previously thought that most of the CoD’s junkets were compensated on a rolling volume basis but now believe that it is closer to 50/50 revenue share.  Thus, the bottom line impact of March’s low hold is not as significant as we thought- however, our conclusion remains the same.