Melco ADR Jump Swells Hong Kong Discount: China Overnight
Melco Crown Entertainment Ltd. (MPEL) resumes trading in Hong Kong today at the biggest discount to New York since August, after data showing Macau casinos received record visitors this week drove the U.S. stock higher.
American depositary receipts of Melco (6883), the casino venture of billionaire James Packer and Lawrence Ho, rallied 2.5 percent over the past two days in New York to trade 5.7 percent above the company’s shares in Hong Kong, which was closed from Feb. 11 for Lunar New Year holidays. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. has gained 0.7 percent since Feb. 12 to 96.79. Trina Solar Ltd. led declines in Chinese solar companies.
Melco ADRs added 2.1 percent in the U.S. yesterday after Macau’s tourism office said visitor arrivals from mainland China jumped 36 percent to 114,363 Feb. 12 and rose 23 percent in the past week. That’s a record for daily visits, and minimum bet sizes also increased, Union Gaming Group analysts wrote in a client note. The Shanghai Stock Exchange reopens Feb. 18.
“The early indications seem to be that the strong start to the New Year is probably going to put up a very strong February,” Brian McGill, a Philadelphia-based analyst at Janney Montgomery Scott LLC who rates Melco ADRs a buy, said by phone. “There’s considerable upside to Melco as it is relatively cheaper than some of its peers and is a beneficiary of strong mass-market trends in Macau. Its Hong Kong stock should catch up with the gains in ADRs when the market opens.”
The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., added 0.6 percent to $40.05 in New York, rallying for a second day. The Standard & Poor’s 500 Index (SPX) was little changed at 1,520.33, after earlier rising as much as 0.4 percent.
Melco’s ADRs rose to $20.99 in New York, the highest close since Jan. 24. The ADRs’ premium over the company’s Hong Kong stock was the widest since Aug. 16, when the advantage reached 7.3 percent. Melco added 1.3 percent in Hong Kong when it last traded there Feb. 8, to HK$51.35, the equivalent of $6.62.
Janney Montgomery’s McGill raised his price target for Melco by 14 percent to $28 in a Feb. 11 note.
The company’s ADRs trade at about 10 times 2013 earnings before interest, tax, depreciation and amortization, lower than the multiple of 13 for peers Las Vegas Sands Corp. (LVS) and Wynn Resorts Ltd. (WYNN) Faster growth of recreational gamblers over high rollers will also boost Melco’s profit outlook as the mass-market sector is more profitable and China’s outlook is improving, McGill said.
China’s economy, the world’s second-largest, halted a seven-quarter slowdown in the three months to Dec. 31, posting growth of 7.9 percent, the fastest pace of expansion since the first quarter of 2012. A new generation of Communist Party leaders was appointed in November in a once-a-decade power shift.
Cnooc Ltd. (883), the largest offshore oil explorer in China, climbed 1.5 percent in its second day of gains to $202.59 in New York, 0.9 percent above the company’s Hong Kong shares. It was the widest premium since Feb. 5. One ADR equals 100 underlying shares in Cnooc.
Beijing-based Cnooc won approval to acquire the U.S. assets of Nexen Inc., clearing its last regulatory hurdle in the $15.1 billion purchase of the Canadian energy company, Nexen said Feb. 12. The deal is expected to close in the week of Feb. 25, according to the statement.
Trina (TSL), a solar cell manufacturer, dropped 5.8 percent to $5.06, leading the first decline in three days for Chinese solar manufacturers traded in New York. The company, based in Changzhou, China, plans to report fourth-quarter financial results Feb. 26, it said yesterday.
Suntech Power Holdings Co., the world’s biggest solar-panel maker, retreated 5.7 percent to $1.5 for the steepest slump since Feb. 4. Yingli Green Energy Holding Co. (YGE) slid 5.2 percent to $3.31 in U.S. trading.
Thirty-day volatility on the China-US gauge fell to 15.7 yesterday, the lowest level this year and compared with an average of 18.1 over the past six months.
The Hang Seng China Enterprises Index (HSCEI) slumped 4.6 percent last week, while the Shanghai Composite (SHCOMP), which is made up of domestic Chinese shares, added 0.6 percent in a second straight week of gains.
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