Inside Asian Gaming

Oct 2007 | INSIDE ASIAN GAMING 37 going to be closely linked to its joint opera- tion with PBL. Despite MPEL being listed as a separate entity on NASDAQ in NewYork with its own equity and debt raising facilities, both ‘parents’ still have financial obligations to that joint operation that feed through to their respective balance sheets. These obli- gations include amortisation (i.e., scheduled repayments) on the US$900 million debt they incurred when they purchased the last currently available Macau gaming sub-con- cession from Steve Wynn in March 2006. Until MPEL’s ambitious US$5.8 billion resort-building programme starts feeding through significant revenues, then inevita- bly expenses associated with the adven- ture will act as a drag on those parental balance sheets. Analysts are still waiting to see wheth- er MPEL’s first Macau offering, the Crown Macau, aimed at VIP customers, will be the sort of cash machine the cheaper and less ambitious Sands Macao proved to be for Las Vegas Sands Corp.If it’s not,then 2009— when the mass market City of Dreams and the Melco PBL-licensed casino at Macao Studio City start contributing revenue— will seem an awfully long way off. Crown contribution Melco’s unaudited results for the first six months to 30 June 2007 show Crown Macau is starting to make a positive impact on the parents’balance sheets—even though it had only been open for 50 days by the time the results were published. Melco says Crown Macau’s net rev- enue during that time was HK$203 million (US$26 million). Melco says average daily VIP rolling chip volume at Crown Macau rose from US$20 million in the first 50 days, to US$44 million by July and more than US$55 million by early August. The company adds that Crown Macau’s market share in terms of Macau’s gaming revenue increased from 1.7% in May to 4.9% by July. Crown Macau’s contribution during the relevant reporting period helped push Mel- co’s revenues up 13% to HK$418 million. In the same period in 2006, revenues amount- ed to HK$371 million. Revenue and net profit were mainly in- fluenced though by gains of HK$386.81 mil- lion from the sale of a stake in NASDAQ-listed MPEL and a decrease in amortisation costs. Net profit attributable to Melco share- holders was HK$284 million for the six months to 30 June 2007, compared to a HK$29 million loss for the equivalent period in 2006. Melco did though register a HK$299.9 million paper loss on associate activities— nearly all of it linked to its 41.39% stake in MPEL. The figure includes its share of a US$28.6 million instalment on the gaming sub-licence fee due during the period.Added to that was Melco’s share of the US$11.6 mil- lion marketing expenses for Crown Macau and Melco’s contribution to MPEL’S US$35.3 million pre-opening expenses for Crown Macau and City of Dreams. MPEL’s prospects Beyond the headlines about MPEL’s pos- sible IPO teething troubles or cash flow pres- sure, investors want to know about the big picture. They want to know what medium to long-term benefits if any they will gain from exposure to Melco and PBL that they wouldn’t get from exposure to one of the Las Vegas operators. They want to know what are Melco and PBL’s prospects in an increas- ingly crowded Macau market, and what sort of returns on investment they can expect. MGM Grand Macau is another East-West partnership—this time linking a Las Vegas operator with Stanley Ho’s daughter Pansy Ho—but the business model looks much more like the Sands Macao approach, with relatively modest capital expenditure and a focus on gaming. Will the East meets West partnership of Melco PBL translate into a unique product offer and some kind of competitive advan- tage? Until now, Macau investors have been required to choose between a copy of Las Vegas in the shape of LVS Corp and Wynn Resorts, or a more traditional version of Chi- nese gaming face-lifted for the 21th centu- Crown Macau’s Market Share in terms of Macau’s Gaming Revenue Sourse: Deutche Bank 5.0% 2.7% 1.7% 4.9% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% May-07 June-07 July-07 Crown Macau VIP areas