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:
