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Macau Studio City, a new junket, and a blowout Q2 makes us wonder why the valuation discount remains so big.

We’ve updated our model for the accretive refinancing and we shake out at $0.32 for 2011, much higher than the Street at $0.21.  MPEL trades at a 25% discount to Wynn Macau, yet there appears to be more positive near-term catalysts for MPEL.

Catalysts:

  • Neptune will open at City of Dreams hopefully by the end of June.  Neptune is one of the largest junkets in Macau and they are shooting for HK$3-4 billion on monthly roll.  We calculate that translates into an incremental US$6-8 million in EBITDA or a 5-10% increase in the current company-wide EBITDA run rate.  This is not in anyone’s model, including ours.
  • A blow out Q2 – we are currently estimating $172 million in Q2 EBITDA or approximately 25% above the Street and that’s after accounting for a softer June for the market.
  • A Macau Studio City announcement – We think a resolution between the two principals in his JV could be announced soon.  MPEL will likely take a sizeable equity stake and retain its management contract.  We estimate potential value accretion around $3 per share at the low end.  See analysis below:

MPEL: STILL CHEAP, STILL CATALYSTS - macau studio city