MPEL 2Q2011 CONF CALL NOTES

Great quarter and estimates need to go up considerably - $185m hold adjusted run rate and Q3 trends better than Q2. Street at $155m for Q3

 

 

"These results represent another strong quarter for our Company, driven by significantly improved operating  performance across all areas of the business. Our second quarter results reflect record consolidated EBITDA on record setting gaming volumes for our Company. Our overall profitability continues to reflect our various cost containment initiatives that help drive strong operating leverage."

 

- Mr. Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment

 

 

HIGHLIGHTS FROM THE RELEASE

  • Net Revenue of $960MM and EBITDA of $216MM
    • CoD: Net revenue of $608MM and EBITDA of $151MM
    • Altira: Net revenue of $311.5MM and EBITDA of $73MM
    • Mocha Slots: Net revenue of $32MM and EBITDA of $10MM
  • Cash: $1.4BN (including $368MM of restricted cash); Debt: $2.4BN
  • Capex: $8.5MM
  • "The show has entertained over 700,000 guests with occupancy levels above 90% on average per show. The House of Dancing Water has significantly reinforced City of Dreams' entertainment proposition and has  generated meaningful positive ripple effects throughout the business, including higher property visitation, hotel occupancy rates, and gaming spend."
  • "We have successfully completed the acquisition of a 60% interest in the Studio City project on Cotai.  We continue to work on our design plans and are currently evaluating financing plans, including a bank loan and other debt financing, to fund this project."
  • "We are also excited about the recently announced dual listing proposal. Upon completion of our Hong Kong initial public offering, our dual listing will provide our existing shareholders with much enhanced liquidity and will also broaden the Company's investor universe."

 

CONF CALL NOTES

  • Committed to growing their mass market revenues, especially premium Mass. Non-gaming amenities continue to drive visitation and spending
    • Cubic and House of Dancing Water continue to drive brand recognition
    • HDW operates at a B/E level but helps drive traffic and gaming volumes
  • Continuing to work on hotel yield management and other cost control efficiencies to help drive margins
  • Believe that the MSC location will provide them with a competitive advantage
  • Continue to see strong GGR growth in Macau.
  • Growth in Chinese visitation continues to outstrip visitation growth from other regions
  • Their Mass GGR growth far exceeds the market growth rate, despite increased supply/competition
  • Hold Adjusted EBITDA with 2.85% hold across the junkets would have been $185MM 
  • Their new facility allows them more flexibility at a cost of a small increase in rate.  There were some charges related to the refinancing in the quarter.
  • Guidance for 3Q
    • D&A: $85MM
    • Corporate: $25MM
    • Net Interest expense: $30MM (including the impact of various corporate transactions)

 

Q&A

  • Pretty happy with Q3 so far
  • With the opening of GM, the center of gravity has moved more towards Cotai and they have benefited from that
  • MSC: 36 month process to open the facility from when they commence construction. Prior owners put in $100MM of capex into the project already.
  • The reason that they are so excited about MSC is their location right by the Lotus Bridge which should be open 24 hours. So they would have extremely high foot traffic at that property.
  • Really looking to keep their operating expenses in check and leverage their scale as they have 3 operating units in Macau.  Initiatives in premium mass should also help their mix.
  • PH3 of CoD is going on their back burner for now, but still think that they will need additional rooms there at some point in the future
  • In 1H11, they have been focusing more on the premium Mass business which has a little less promotional expense attached to it.  Hence, the better margins.
    • Promotional expenses were $11MM lower than we estimated and have been steadily declining as a % of casino revenue over the past 2 years
    • This year, within the mass segment, premium mass accounted for 50-60% (last year was 60%); hence, grind business accounted for 40-50% of the mass business.
  • CoD hold adjustment
    • The hold was pretty close to 2.85%, but they had favorable mix in the quarter between RC and Revshare - which had a $7MM benefit
  • Any change in commission rate or operating expenses?
    • No change in the commission rate, just mix shift in volumes
    • Players rebates were flat sequentially
    • Promotional expenses were tighter
  • Have higher utility expenses in 2Q over 1Q. They also have to book a higher bonus provision on higher volumes.  Going into 3Q, they intend to keep operating expenses flat QoQ.
  • Table cap will last until March 2013, and post March 2013, they would increase it 3-5% - so only new builds will get those tables.  Therefore, they are trying to yield up their tables as you can see from higher win per tables.
  • Deceleration in RC volumes?
    • Had to move the opening of some junket rooms until 3Q so that impacted their growth in 2Q
  • They have faith that the Macau government will grant them the necessary number of tables at MSC to make the project viable.  For them, it's really about getting the necessary approvals to restart construction vs getting gazetted. Their process is a much less complicated one.

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