ANOTHER BIG UPCOMING Q FOR MPEL

Word definitely getting out but analysts still need to raise estimates.

As we wrote about on December 16th, “A PREVIEW OF THE EARNINGS PREVIEW,” MPEL should post another huge, estimate-beating quarter.  Since our note, the stock is up 28% but given the low valuation and likely positive estimate revisions into the Q, there is likely more upside in the stock.  Despite the big move in the stock, MPEL still trades at under 7x 2013 EV/EBITDA.  While potential dilution is always a risk with this company, we are still below a stock price that would warrant concern of an equity deal.

We project $226MM of EBITDA for Q4, which is 11% above consensus.  Some of the ‘upside’ is due to better hold in the quarter but that’s no surprise.  While most investors have been focused on the potential slowdown in Macau’s business, we would point out that MPEL’s mass business has continued its momentum with over 60% YoY growth in Q4.

4Q Model Detail

We estimate that City of Dreams will report $713MM of net revenues and $179MM in EBITDA

• Our net casino win projection is $683MM
  • VIP net win of $437MM
    • Assuming 15.5% direct play, we estimate $20.4BN of RC volume (a 33% YoY increase) and a hold rate of 3.04%
    • Assuming theoretical hold of 2.85%, EBITDA would be $14MM lower and net revenues would be $40MM lower
  • $209MM of mass win, up 66% YoY
  • $36MM of slot win
• $30MM of net non-gaming revenue
  • $22MM of room revenue
  • $19MM of F&B revenue
  • $25MM of retail, entertainment and other revenue
  • $37MM of promotional allowances or 55% of gross non-gaming revenue
• $434MM of variable operating expenses
  • $338MM of taxes
  • $84MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.31% or 43% on a rev share basis)
• $32MM of non-gaming expenses
• $67MM of fixed operating expenses compared to $66MM in 3Q

We project $271MM of net revenues and $56MM in EBITDA for Altira

• We estimate net casino win $262MM
  • VIP net win of $236MM
    • $11.9BN of RC volume (a 4% YoY increase) and a hold rate of 2.94%
    • Assuming theoretical hold of 2.85%, we estimate that EBITDA would be $5MM lower and that net revenues would be $11MM lower
  • $26MM of mass win, up 33% YoY
• $9MM of net non-gaming revenue
• $188MM of variable operating expenses
  • $147MM of taxes
  • $37MM of gaming promoter commissions in addition to the rebate rate of 96bps (we assume an all-in commission rate of 1.27% or 43% on a rev share basis)
• $3MM of non-gaming expenses
• $24MM of fixed operating expenses in-line with 3Q

Other stuff:

• Mocha slots revenue and EBITDA of $32MM and $9MM, respectively
• D&A: $96MM
• Interest expense: $29MM
• Corporate expense: $19MM