As we expected, MELCO reported revenues and EBITDA below street expectations.  The revenue number was a little worse than we projected, as was the EBITDA loss.  Somehow, all the “miss” came from Altira… can someone say cost transfer? Anyway, not sure any of this matters with the carrot of commission caps, lower taxes and possible lifting of visa restrictions hanging in the wind.  The positive takeway is that CoD is still ramping, keeping the possibility alive that EBITDA can grow into the valuation.


MPEL 2Q09 Earnings call:


  • Good hold has continued into August
  • Overall market share into August has also continued to increased
    • Well, one week doesn’t make a trend
  • MPEL thinks that the Macau market will continue to strengthen and the 2H09 will be much stronger
    • “High quality supply leads to growth”
      • Sound familiar?
  • Fortunate to have China as an engine of growth … that’s true
  • Will find ways to run the property more efficiently
    • Moved 800 employees from Altira to CoD
  • Will open Hyatt in September, are short on rooms now
  • Altira strategy is to differentiate it from CoD, no signs of cannibalization
    • 22% of RC in Macau in July btw both properties
  • They have transitioned from a development company to one focused on operations – 100% focused on maximizing EBITDA
  • Excluding gaming taxes & commission, adds up to 1.3MM USD per day (including corporate office)
    • Will look for efficiencies
  • Have 190MM of closing out costs on CoD in 3Q09
  • 3Q09 guidance
    • 75-80MM D&A
    • Net interest: 12-14MM
    • Pre-opening expenses (Grand Hyatt): 10MM


  • Amax in City of Dreams?
    • Key is not to cannibalize the business between the two properties
    • Seeing really strong volumes despite the 1.25% cap that they have imposed on themselves
    • Have not opened all VIP rooms at CoD, so there is capacity to add more tables if needed
  • Commission caps? Sounds like the government will take charge - is the fine substantial enough to enforce it?
    • The association of the concessionaires has been very positive
      • “Gone are the days of ego”… I doubt that 
    • Process of formalizing the enforcement could take a few weeks or a few months
    • Unless they do more than $HK30BN of RC per month the commissions paid to junkets is 1.25% or less.. so at these volume levels .... there wouldn’t really be any impact
    • It’s not about the fear of the fine, its more the carrot of the higher margins from the cap
    • In addition to monetary fines, there will be additional consequences
    • Will be no impact at CoD, but will help Altira
    • No clarity on regulating the granting of credit
    • Although, with the lower volumes that the property is doing it probably won’t make a difference … maybe by 2 bps or so
  • Shift of business from Peninsula to Cotai, any other partnership initiatives with LVS?
    • Seeing an increase in conversion from visitation “looky –loos” to players
    • As they gather more data they can better manage the product mix and costs
    • Will push to increase the earnings now
    • Core inbound markets to CoD are Southern China and HK, see continued growth from South China
  • Trends in August
    • “Caution anyone to look at first few days worth of data”
      • But he opened the call taking about August… hmmm
    • 2% below the market leader in first week of August (in terms of share)
  • Potential policy changes under new CE
    • Was the Secretary for Cultural and Tourism programs, understands that Macau’s health depends on tourism which is driven by the gaming industry
    • 10th anniversary of the handover of Macau is a key date… “he may be bearing gifts”
  • Swine flu impact?
    • Peak period of concern was April/ May, not sure if there is any overhang at this point
  • What are they seeing from competitors to the opening of CoD?
    • Having seen a dramatic increase in the promotional environment
    • There is a school of thought that everyone will compete away “margins” in the competition for Mass business: they aren’t seeing any of that
  • Operating cash flow in 2Q09? Use EBITDAR is a good metric less preopening expenses + WC deposit
  • Availability under Credit Agreement - $50MM undrawn on R/C
  • All in commission rates at CoD?
    • 1.25% (blended btw junket and direct)
  • Most properties derive 85-90% of their VIP business from junkets, but given how wonderful CoD is – they have a higher ratio of direct play
  • CoD has already have some initial tweaks of MASS/VIP
  • Mass market growth in August?
    • Improvement continues sequentially
    • Hold in July was a little below 16% on the Mass side, over time Mass hold increases at properties. Because over time, people will play more as they stay at the property.  The longer players play – the higher the hold goes… can get as high as 21/22%
  • Bad debt write-off at Altira?
    • Related to direct play
  • Impact of Singapore
    • Government has had several conversations on the topic of the potential impact of lowering the tax rate. Currently, the rate is 35% + 4% for social contributions,  Singapore is lower (5% + 7% at the corporate level)
    • Advantage of Macau is the location
    • So hopefully the opening of Singapore will be positive resulting in lower taxes
  • Capex for Phase Three of CoD which includes theatre?
    • End of the first/ beginning second quarter 2010 – no incremental costs – already incorporated into Ph2
  • MPEL thinks that Greenfield projects will be able to be discussed again when the market and capital markets recover
  • Where are they putting premium Mass business? Rebates on premium mass
    • GinMen tables? Account for it in Mass Drop
    • Commission rates start at .3% range to .6% for Rolling Chip customers (Direct play) not a premium cash customer. There are very limited amount of tables dedicated to this
  • Impact of opening of Grand Hyatt?
    • Running on full occupancy in July- see significant upside in Sept/Oct
    • Retail/ Mass should benefit
    • Only 600 rooms, and 300 of those (Crown) are only for VIP … then the 300 at Hard Rock – spreading it from Retail demand and Mass players (so really only 150 rooms for sale).  The 800 more rooms will really help them assure that gaming floor stays busy from midnight – 4am
      • They believe there will be a 20% lift at least

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