MPEL: A SMALL MISS SHOULD BE GOOD ENOUGH

For the first time in five quarters, MPEL could miss the Street, but at 7x current year EBITDA, should we really care? 

MPEL could come in just a tad below consensus EBITDA estimates this quarter.  Pretty good performance considering the LVS and WYNN punts.  The stock is down 57% since its 52 week high on April 26^th so expectations cannot be too high.  Based on our below consensus estimates, MPEL is trading at just 7x 2012 and 6x 2013 EBITDA – and that’s before we give the company any credit for Macau Studio City or the pending deal partly owned and managed by Belle Grande Manila Bay.  Investors must really be afraid of the Macau VIP outlook.

We estimate hold played a small role in the quarter of around a $4MM EBITDA benefit.  CoD held a little high, while Altira held a little low.  We are projecting $212MM of EBITDA for Q2, which is 3% below consensus of $219MM.  Consensus estimates have factored in hold of 2.94% for CoD (we’re at 2.98%) and 2.8% for Altira (vs. HE at 2.75%).

While most investors are worried about the slowdown that’s been occurring in the VIP market, we would point out that MPEL’s mass/slot business should grow about 28% YoY in 2Q12 and has averaged 49% YoY in the last 3 quarters.  MPEL remains the cheapest concessionaire with operations on Cotai Strip with two large projects in the pipeline and a multiple of just 6x 2013.

2Q Detail

We estimate that City of Dreams will report $704MM of net revenues and $185MM in EBITDA (2% below consensus)

• Our net casino win projection is $682MM
  • VIP net win of $400MM
    • Assuming 15.5% direct play, we estimate $19.3BN of RC volume (flat YoY) and a hold rate of 2.98%
    • Using CoD’s historical hold rate of 2.87%, EBITDA would be $7MM lower and net revenues would be $18MM lower
  • $243MM of mass win, up 37% YoY
  • $38MM of slot win
• $23MM of net non gaming revenue
  • $22MM of room revenue
  • $14MM of F&B revenue
  • $23MM of retail, entertainment and other revenue
  • $37MMM of promotional allowances or 63% of gross non-gaming revenue or 5.4% of net gaming revenue
• $407MM of variable operating expenses
  • $334MM of taxes
  • $61MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.21% or 40.8% on a rev share basis)
• $25MM of non-gaming expenses
• $87MM of fixed operating expenses flat QoQ

We project $216MM of net revenues and $38MM in EBITDA for Altira (5% above consensus)

• We estimate net casino win $209MM
  • VIP net win of $281MM
    • $10.2BN of RC volume (23% YoY decrease) and a hold rate of 2.75%
    • Using Altira’s historical hold rate of 2.81%, we estimate that EBITDA would be $3MM higher and that net revenues would be $6MM better
  • $26MM of mass win, up 12% YoY
• $7MM of net non gaming revenue
• $146MM of variable operating expenses
  • $120MM of taxes
  • $24MM of gaming promoter commissions in addition to the rebate rate of 96bps (we assume an all-in commission rate of 1.19% or 43.3% on a rev share basis)
• $3MM of non-gaming expenses
• $29MM of fixed operating expenses in-line with 1Q

Other stuff:

• Mocha slots revenue and EBITDA of $36MM and $9MM, respectively
• D&A:  $96MM (guidance of $90-95MM)
• Interest expense:  $25MM (guidance of $23-25MM)
• Corporate expense:  $20MM (guidance of $18-20MM)