MPEL 2Q11 REVIEW

Aside from the luck factor, the Q2 upside looks sustainable. The Street has some major revisions to do.

We'll get to the quarter in a minute but the incremental story is the sustainability of revenues and higher margins.  We are now estimating $211 million in Q3 EBITDA, up from $188 million, and much higher than the Street at $160 million.  Ok so back to Q2.

MPEL reported a blockbuster quarter, exceeding our expectations which were well ahead of consensus.  Sure, there was some hold benefit, but most people already knew that Altira held lucky in the quarter.  Factoring out the $7MM mix benefit at CoD, MPEL still delivered an impressive quarter where costs efficiencies leveraged volume growth to deliver impressive results.

Q2 Detail

• Net revenue of $960MM exceeded our estimate by 1% due to lower promotional allowances
• Adjusted EBITDA of $216MM exceeded our estimate by $36MM due to flow through of lower promotional allowances, lower fixed expenses and beneficial RC mix at CoD
• CoD net revenues of $608MM were $7MM higher than we estimated while EBITDA was $24MM better.
  • Flow through was 61% vs our estimate of 41%
  • Net casino revenue was $4MM better, while net non-gaming revenue was $3MM better than we estimated
  • Net VIP win was $4MM higher than we estimated          
    • Direct VIP play was 13.2% of RC volume
    • RC volumes were 1% lower than we estimated; however, we think hold was 2.84% - 4bps better than we estimated
    • Due to beneficial mix of RC and RevShare, we estimate that the commission rate was 1.22% vs our estimate of 1.26%
      • High hold on the RC piece but low hold on the RevShare makes for a lower than theoretical commission payout on 2.84% hold
• Mass table win and slot win were in-line with our estimates
• Total variable expenses were $370MM (taxes, gaming premium, junket commissions and estimated doubtful accounts)
• We estimate that the cost of non-gaming revenue was $25MM
• Implied fixed costs decreased to $62MM - $8MM below our estimate
• Altira net revenue of $311.5MM was $5MM below our estimate while EBITDA was $8.5MM better than we estimated
  • Net casino revenue was $7MM lower, while net non-gaming revenue was $2MM better than we estimated
  • Net VIP win was $8MM higher than we estimated          
    • RC volumes were 2% higher than we estimated due to some direct play volume which we estimate was 3% of total RC. This could be a reflection of the premium mass business mentioned on the call.
    • Hold was in-line with our estimate
• Mass table win was $6MM lower than we estimated due to slightly lower drop and much lower hold.  We estimated 19% hold – 3% higher than actual. Typically, higher drop properties have better hold rates.
• Total variable expenses were $212MM (taxes, gaming premium, junket commissions and estimated doubtful accounts)
• We estimate that the cost of non-gaming revenue was $3MM
• Implied fixed costs decreased to $23MM - $7MM below our estimate

Outlook

• 3Q11: net revenue of $992MM and adjusted EBITDA of $211MM; this is 9% and 32% above the Street, respectively.
• 2011: net revenue of $3,768MM and adjusted EBITDA of $757MM, 7% and 22% above the Street, respectively.