Takeaway: Long term looks favorable for MPEL but will have to overcome fears of a China junket crackdown

Strong quarter; beats the Street, but falls a little below our projections due to higher costs


“Our results in the fourth quarter of 2012 completes a stellar year for our Company, achieving record quarterly and full year EBITDA. Our flagship property, City of Dreams, continued to deliver impressive results, recording significant sequential and year-over-year improvements in operating fundamentals in the fourth quarter, particularly as it relates to the increasingly important premium mass segment."


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



  • Improvement in margin was driven by mass/vip mix
  • Table yields at CoD continue to outperform. Table optimization activities continue.
  • Expected to close the $825 million high-yield bond debt this month
  • The RC segment has begun to return to growth
  • Adjusted for poor hold, EBITDA would have been approximately $255MM 
  • Very pleased with the financing they obtained for both of their projects
  • Non operating guidance:
    • D&A: $90-95MM
    • Corporate: $20-22MM
    • Net interest: $38-40MM (mid-quarter issuance and refinancing of their bonds, excluding the 1x cost of the note repurchase)



  • The junket crackdown news came from a British Media outlet, so that should tell you something in and of itself. They have not heard or seen anything regarding a junket crackdown.
  • Thinks that their Mass tables are performing quite well compared to the market at CoD
  • Premium mass is really about product and services. It's a competitive segment but think that they have the best hotel inventory in Macau. In the last 3 quarters, their margins have remained stable in the premium mass segment.
  • CoD Ph3:  They are very advanced in terms of design.  They are waiting for the land to get re-gazetted since it was orginally meant to be an apartment hotel.
  • Think that the new Chinese administration is currently ramping up and the Chinese economy and market is improving YoY. Predicts at least 10-15% growth in Macau GGR market in 2013. 
  • Feels that the Chinese government continues to be very supportive of Macau, as evidenced by all of the oncoming infrastructure.  While there are crackdowns on specific junkets from time to time, there is nothing unusual going on.
  • $16MM hit to EBITDA at CoD, offset by $10MM benefit at Altira using 2.85% to normalize (we use something higher since historical hold is closer to 2.9%)
  • Slot business performed very well primarily due to the opening of their VIP slot area. Took a few months post opening for that area to ramp up.
  • Altira: Removed about 40 tables and moved them to CoD, but at the same time they are doing the same volume at that property.  
  • What's driving the good hold on the Mass tables at CoD:  Improved efficiency and length of play.  Improved their F&B area, used selective marketing in the past.  Minimum bet levels have also increased. 
  • MCE: capex: $75-100MM of maintenance; MSC they have an obligation to fund $825MM of cash into the project. $285MM remains to be funded from cash. They also have a sponsor guarantee which they will fund $225MM of or 60% of that. For the Philippines:  $450-475MM this year is expected to be spent. They have a few options on how they want to fund the Phillipine capex.
  • There are a number of covenants that were relaxed
  • They are always completely full during CNY.  However, during the first few days of CNY, people usually stay home with their families
  • They would love to increase their ownership of the MSC
  • MSC: heavy duty construction mode since this summer. 95% of the piling work is complete. Have about 500 workers on site. So far the main contractor is doing a great job
  • Manila: Hope the closing of their agreement with their partner will occur in the next month. Some work being done right now on Phase I - structurally. 
  • Given their experience of opening CoD during the financial crisis they are more conservative about leveraging up to pay a dividend during a heavy construction period.  If the openings go well, then they will likely revisit paying a dividend in early 2014.
  • In May, they expanded their premium mass footprint.  It took some time to improve performance on that space. They also completed their renovation of the high limits premium mass area recently. Sees the momentum in their mass business continuing for the rest of the year. 
  • Feel like they have the best partner in the Philipines and what they are building will be very well received 



  • MPEL reported $1,101MM of net revenues and $247.5MM of Adjusted EBITDA, 3% and 4% ahead of the Street, respectively
    • COD: net revenue of $772.5MM and Adj EBITDA of $219.5MM
      • We estimate that below normal hold negatively impacted EBITDA by $18MM
    • Altira: net revenue of $281.7MM and Adj EBITDA of $43.8MM
      • We estimate that higher than normal hold boosted  EBITDA by $8MM
  • “Successfully priced a US$1BN senior note offering at an attractive 5.0% coupon, which will allow us upon completion to, among other things, refinance our US$600MM 10.25% senior notes."
  • “Studio City remains on track to open around the middle of 2015. We successfully raised US$825 million under our Studio City senior note offering and signed the facilities agreement with the lead arranging banks in relation to our US$1.4 billion Studio City senior secured facilities, both of which are achieved without a corporate guarantee from the Company, while the latter is accomplished based on limited sponsor support from the Company. Together with full contribution of committed shareholder equity, these financings upon full drawdown are expected to deliver a fully funded project at the Studio City level. Our funding approach, together with our fixed price, lump-sum, contracting strategy provides us with greater certainty regarding cost and timetable."
  • “During the fourth quarter, we completed the acquisition of a majority interest in Manchester International Holdings Unlimited Corporation, a company listed on the Philippines Stock Exchange. We remain on track to open our unique integrated casino resort in mid-2014."
  • Capex: $76.7MM "primarily related to various projects at City of Dreams, as well as design and construction costs associated with Studio City"

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more