Takeaway: Even on our Street low estimates, MPEL's valuation remains cheap. However, catalysts remain negative and estimates are going lower

A slight miss from our estimates on an apples to apples hold adjusted basis






  • Luck-adjusted EBITDA margin: 28.1%
  • Challenging VIP environment and higher labor costs
  • CoD:  mass table yields significantly above peers
  • Highly competitive market in Macau
  • 5th CoD tower:  well under way
  • CoD Manila:  plan on opening doors in December.  Grand opening: CNY 2015
  • Studio City:  on track to open mid-2015.  Have received all necessary permits and approvals to complete project.  Will double room inventory and gaming floor for MPEL.
  • Repurchased ~$100m of stock for 3Q
  • Property EBITDA 3Q:  27.5% (27.4% in 3Q 2013, 26.4% in 2Q 2014)
  • 3Q luck-adjusted EBITDA : $325m
  • 2.69% low hold impacted EBITDA by $20m
  • Mass accounts for 85% of groupwide EBITDA
  • 4Q non-operating guidance:  D&A ($95-100m), corp expense ($30m), consolidated interest expense ($40m) of which $11m (CoD Manila), net of $27m of cap interest

Q & A

  • October mass decline:  downturn in market has affected premium mass segment.  More uncertainties in the market.  
  • Anti-corruption drive having an impact on premium segment
  • Reclassification of premium mass to VIP:  In 2H of October, converted premium mass tables into VIP. If no reclassification, mass revenues would have been slightly up YoY rather than down 11%
    • All cash business. No direct rebates.
  • If Japan fall away, it will meaningfully change capital allocation/dividend policies.
  • One competitor is becoming more promotional using their large room base (LVS)
  • Saw more promotions in premium mass segment.  Is concerned about this.
  • Chinese President visit in December:  in the long-term will benefit Macau; could bring a gift bag:  24-hr border crossing, etc.
  • Altira:  Suncity just started operations in mid-Sept.  Just ramping up.  
  • Altira strategy:  want to bring large junkets to property
  • 100% occupancy:  have turned away about 40% of potential customers
  • CoD Manila:  want to be extra safe
  • Mass market margins:  flat QoQ
  • Studio City:  usually when they do mass labor recruitment, it is 5-6 months before opening the property.  Waiting to see when Galaxy does their mass labor recruitment
  • Henquin Island:  have not really looked at this opportunity
  • CoD Manila:  more VIP demand than available supply.  Anti-corruption doesn't just relate to Macau; it includes Philippines and Las Vegas.
  • Mass/table breakout (end of Sept 30):  Altira (95 VIP, 30 MASS), COD (185 VIP, 310 MASS)
  • MPEL Premium mass outperformance:  quality of product and consumer service; high hold % also matters
  • 2nd wave of Cotai openings will have relative competitive advantages
  • Smoking ban:  smokers play longer hours when they can smoking.  Sees some negative impact from smoking ban.  Added smoking rooms on mass floors (in CoD and Altira).
  • Premium mass business at CoD: 50-60%
  • Difference btw premium mass margin and grind mass margins is de minimis.
  • DICJ controversy with MPEL's decision on allowing smoking on mass:  MPEL believes it is completely compliant with law
  • MSC:  hurdle rate of 20% cash-on-cash return even with downturn in market
  • Dividend policy:  30% of NI (no changes at this time)
  • Altira:  productivity per table substantially lower than CoD levels; productivity will be better in coming quarters
  • MSC:  no change to budget.  Number of tables:  don't know

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