MPEL missed our EBITDA estimate but there were some encouraging signs.  Mass drop was better than we thought in Q3 and November volumes look better than October. 


MPEL put up a sloppy quarter, generating only $56 million in adjusted EBITDA versus the Street at $60 million and our estimate of $66 million.  The shortfall was driven in part by by low hold percentage, primarily in the Mass and slot segments, and lower Rolling Chip and direct VIP play.  Encouragingly, Mass drop was strong, beating our estimate at City of Dreams (CoD) by almost $40 million, or 11%.  See the chart below.






The VIP segment was confusing, obscured by the lack of data.  Direct VIP play is always the wild card.  On the conference call, the company indicated that direct VIP play was 17% of total VIP and the VIP hold percentage was slightly above 3% at CoD.  Total VIP volume at CoD was $9.0 billion, below our projection of $9.8 billion.  We were anticipating a strong hold percentage of 3.3%.  On the surface it appears that volume and lower hold dinged the results pretty significantly.  However, by our calculations direct VIP play was actually closer to 10% of the total and the hold percentage was more in-line with our 3.3% estimate.  We need to get more color but suffice it to say that VIP, in the aggregate, was disappointing.






Going forward, the news is better.  Volumes remain strong and MPEL actually did better in November than October.  While market share took a hit in October, it was partly a function of October being a strong Mass month for Macau and MPEL being positioned as more of a VIP operator.  Grand Hyatt should boost Mass volumes and likely expand normalized hold percentages.  CoD is holding around 16% versus the more mature Mass properties over 20%.


MPEL has a long way to go at CoD, particularly with the increasingly important Mass business.  At least the signs are somewhat encouraging.  The stock remains cheaply valued when compared to the Wynn Macau and the expected range for Sands China with a discount of 30-40%.

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