ADJUST YOUR FOCUS TO HOLD-ADJUSTED EBITDA

MPEL held poorly but still should beat the Street.  Here are the details.

As we wrote about in our Macau preview notes (“MACAU: A PREVIEW OF THE PREVIEW”, 4/9/13) and (INVESTABLE MPEL”, 03/21/13), MPEL remains our favorite name in the space with the catalyst of a terrific Q1 earnings release looming.  More importantly, the valuation continues to linger at a big discount relative to most Macau names and could be ripe for a 2-3 multiple turn increase in its EV/EBITDA valuation.  MPEL should transition from a trading vehicle to a core long-term holding for many long only investors which should help inflate the multiple to something more realistic:  11-12x (post-opening of MSC).

   

We are projecting that MPEL will report $1,119MM of net revenue and $267MM of EBITDA, 3% and 5% ahead of consensus, respectively.  More importantly, on a hold-adjusted basis (using each property's historical hold rate), our EBITDA estimate goes to $285 million.  Another strong quarter should bring the company closer to gaining the respect that it deserves from the investment community.

Q1 DETAIL

We estimate that City of Dreams will report $826MM of net revenues and $240MM in EBITDA; 4% ahead of consensus despite low hold at the property.

• Our net casino win projection is $810MM
  • VIP net win of $425MM
    • Assuming 17.5% direct play we estimate $25BN of RC volume (up 11% YoY) and a hold rate of 2.6%
    • Using CoD’s historical hold rate of 2.88%, EBITDA would be $18MM higher and net revenues would be $67MM higher
  • $340MM of mass win, up 36% YoY - a record for CoD.  Mass revenues reached a record $127MM in March, and have remained above the $100MM mark for the past 5 consecutive months
  • $44MM of slot win
• $17MM of net non-gaming revenue
  • $25MM of room revenue
  • $17MM of F&B revenue
  • $20MM of retail, entertainment and other revenue
  • $45MMM of promotional allowances or 73% of gross non-gaming revenue or 5.5% of net gaming revenue
• $464MM of variable operating expenses
  • $404MM of taxes
  • $46MM of gaming promoter commissions in addition to the rebate rate of 90bps (we assume an all-in commission rate of 1.08%)
• $24MM of non-gaming expenses
• $98MM of fixed operating expenses up 7% YoY and $2MM QoQ

We project $259MM of net revenues and $40MM in EBITDA for Altira, 7% below the Street

• We estimate net casino win $270MM
  • VIP net win of $257MM
    • $11.9BN of RC volume (flat YoY) and a hold rate of 2.92%, which is in-line with the property’s historical hold rate
  • $22MM of mass win, down 13% YoY
• $3MM of net non-gaming revenue
• $184MM of variable operating expenses
  • $144MM of taxes
  • $37MM of gaming promoter commissions in addition to the rebate rate of 95.5bps (we assume an all-in commission rate of 1.26%)
• $3MM of non-gaming expenses
• $32MM of fixed operating expenses

Other stuff:

• Mocha slots revenue and EBITDA of $34MM and $8MM, respectively
• D&A:  $95MM (guidance of $90-95MM)
• Interest expense:  $31MM (guidance of $38-40MM)
• Corporate expense:  $21MM (guidance of $20-22MM)