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Melco Crown Earnings Miss Estimates as VIPs Reduce Bets

Melco Crown's City of Dreams
Women sit in front of the City of Dreams complex, operated by Melco Crown Entertainment Ltd., in Macau. Photographer: Lam Yik Fei/Bloomberg

Nov. 6 (Bloomberg) -- Melco Crown Entertainment Ltd., the Macau casino venture of billionaire James Packer and entrepreneur Lawrence Ho, posted third-quarter earnings that missed estimates after high-stakes gamblers spent less.

Earnings before interest, taxes, depreciation and amortization rose 39 percent to $315.2 million, including adjustments, Hong Kong-based Melco Crown said in a statement yesterday. That was less than the $328 million average of four analyst estimates compiled by Bloomberg News. Net income climbed 71 percent to $179.4 million, the company said.

Melco Crown is increasing focus on premium mass gamblers who are more profitable than VIP clients brought in by junket operators, and is making “significant progress” on its Studio City resort, Co-Chairman Ho said. Studio City, located on Cotai, Macau’s answer to the Las Vegas Strip, is part of Melco Crown’s new attractions aimed at the mass-gambling segment also targeted by bigger rivals including Sands China Ltd.

The move to mass from VIP “gives the company better margins,” Philip Tulk, a Hong Kong-based analyst at Standard Chartered, said by phone today. “The company will be more opportunistic in terms of table allocation decision in the future.”

Melco Crown rose 0.4 percent to HK$88.50 as of the midday break in Hong Kong trading, while the city’s Hang Seng Index advanced 0.3 percent. The stock has more than doubled this year, compared with a 2 percent gain for the benchmark.

Rolling Chip

VIPs account for about two-thirds of the casino revenue that flows into Macau, the world’s largest gambling hub. They typically bet high stakes and are brought in by junkets who take commissions from casinos.

VIP rolling chip volume, or bets by high-stakes players, dropped to $10.8 billion from $11 billion a year earlier at Altira, Melco Crown’s more VIP-focused casino resort.

At its flagship City of Dreams casino, the figure rose 17 percent to $22.8 billion. The percentage of that kept by Melco Crown shrank to 3 percent from 3.2 percent in the same period last year, according to the statement.

City of Dreams’ mass-market table-game revenue rose 36 percent to $1.21 billion while slot-machine handles gained 52 percent to $1.24 billion. The resort lured visitors from China with shows such as “The House of Dancing Water,” featuring motorcycle stunts, and the cabaret-style “Taboo.”

Overseas Push

The company is expanding overseas in the face of land and labor constraints in Macau. Melco Crown has partnered Belle Corp. to develop and operate a casino resort in Manila that’s expected to cost more than $1 billion. Belle holds one of four casino licenses in the Philippines.

In the third quarter, the Manila project incurred about $5.7 million of operating expenses, which relate to pre-opening costs such as capital lease charges, the company said.

Ho, a son of casino mogul Stanley Ho, is also investing in two Russian casino resorts through his other two companies, Melco International Development Ltd. and Summit Ascent Holdings Ltd.

Casino revenue in Macau, the only place in China where casino gambling is legal, jumped 32 percent to a record 36.5 billion patacas ($4.6 billion) in October, boosted by mainland Chinese visitors who spent their weeklong National Day holidays in the city.

Gambling revenue in Macau increased 18 percent to 297.1 billion patacas in the first 10 months of this year, close to the $38 billion revenue raked in last year.

To contact the reporter on this story: Vinicy Chan in Hong Kong at vchan91@bloomberg.net

To contact the editor responsible for this story: Stephanie Wong at swong139@bloomberg.net

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