Melco Crown Entertainment Ltd ADRMPEL

Morningstar Rating

Stock Research and Analysis

by Michelle Chang

Melco Crown Entertainment is a pure play on Macau, the fastest-growing gaming market in the world. This narrow-moat firm's potential is exciting, but an onslaught of competing casino projects warrants a very high fair value uncertainty rating.

The Read more

Bulls Say

Melco Crown recently entered into an agreement with a prominent junket provider that should help drive visitation and VIP gambling at the Altira Macau. Junket operators help casinos bring in high rollers from mainland China.

Casino properties in Macau have recently earned higher returns on invested capital than their Las Vegas counterparts, partly because of more favorable gambling dynamics. For example, revenue per table game in Macau is almost 4 times greater than in Vegas.

A growing middle class in China and prime geographic location should help fuel growth in the Macau gaming market. More than 100 million people live within three hours of Macau. Read more

Bears Say

Barriers to entry in the Macau gaming market are relatively low. Although the Macau government has issued only six gaming concessions and subconcessions, there are no restrictions on the number of properties that concession holders can build.

Any cost overruns for the company's construction projects would raise the firm's invested capital base and probably result in a lower fair value estimate.

Melco Crown will earn all of its revenue and profit from its gaming properties in Macau. This lack of geographic diversification could disproportionately hurt the company should the Macau gaming market experience a hiccup or longer-term problem. Read more

Strategy

Melco is rapidly developing its presence in Macau, the hottest gaming market in the world. The company's unique properties target different market segments. The firm's Altira Macau property targets the Read more

Management

Lawrence Ho is CEO and cochairman of Melco Crown. He is the son of Stanley Ho, who until recently held a monopoly over the Macau gaming market. Until the company's initial public offering, Stanley Ho was also a board member of Melco. James Packer, chairman Read more

Profile

Melco Crown bought its subconcession to operate casinos in Macau from Wynn Resorts in 2006. The company also earns a small amount of revenue from eight slot machine parlors Read more

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