Macau’s Baccarat Boom Earns Melco Crown Top Ranking
The six-month rally that has sent casino operator Melco Crown Entertainment Ltd. (MPEL) to a record high isn’t scaring away stock analysts.
Melco Crown, which runs two gambling resorts in Macau, has the highest consensus analyst ranking among the city’s 10 casino companies with at least five ratings, according to data compiled by Bloomberg. Melco said in November it was making “significant progress” in construction of a third Macau resort as it taps into a baccarat boom that drove up gaming revenue 18 percent in the former Portuguese colony in 2013.
“Macau has a ton of momentum right now and trends have never been stronger, hence, valuations have never been higher,” Grant Govertsen, a Macau-based analyst at Union Gaming Group said by e-mail Jan. 14. “In all likelihood, analysts’ estimates for 2014 are still too low.”
American depositary receipts of Hong Kong-based Melco Crown climbed 4.6 percent in its eighth straight week of gains, reaching a record high of $44.97 on Jan. 17. It has surged 90 percent over the past six months. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York slipped 0.6 percent to 102.44 last week as Sina Corp. (SINA) posted the biggest drop in 14 months while E-House China Holdings Ltd. tumbled to a one-month low.
Melco’s Hong Kong-listed shares fell 1 percent to HK$118.9 as of 11:16 a.m. today.
Melco Crown, the Macau casino venture of entrepreneur Lawrence Ho and billionaire James Packer, has an average consensus score of 4.74, according to calculations made by Bloomberg by converting each of the analysts’ current recommendations into a number from 1 to 5. Twenty one out of 23 analysts surveyed by Bloomberg recommend that investors buy the stock. Galaxy Entertainment Group Ltd. and Sands China Ltd. ranked second and third on the list.
Besides building the Studio City resort in Macau’s Cotai area, the company is expanding overseas and has partnered with Belle Corp. (BEL) to develop and operate a casino resort in Manila that’s expected to start operation in mid-2014. Belle holds one of four casino licenses in the Philippines.
Sterne, Agee & Leach Inc. chose Melco Crown as its top gaming pick for a fifth year, raising its 2013 to 2015 annual growth estimates this month. Credit Suisse Group AG last week lifted its price forecast for Melco’s ADRs by 19 percent to $50.50.
“Melco’s Manila resort will be the only significant Asian casino opening this year,” David Bain, an analyst with Sterne Agee, said in an e-mail Jan. 17.
ADRs of Melco, which currently gets all revenue from Macau, are trading at 27 times 12-month forward profit, the highest since September 2011. That is still below the valuation of peers including Las Vegas Sands Corp. and Wynn Resorts Ltd. deriving from the calculations of the companies’ Macau operations, according to Bain.
Sina Corp., which owns Weibo, the biggest Chinese microblogging service, tumbled 12 percent last week to $75.02, the largest decline since November 2012.
Cynthia Meng, an analyst at Jefferies Group LLC, cut Sina to hold from buy in a note dated Jan. 17 and reduced the price target by 21 percent, citing a lack of advertiser interest and weaker profit outlook for the company’s Weibo unit.
The number of users for the Chinese versions of microblogs dropped 9 percent from a year earlier to 281 million at the end of 2013, according to a report published by China Internet Network Information Center Jan. 16. Among the people who reduced use of microblogging platforms, 37.4 percent have moved to Tencent Holdings Ltd.’s WeChat instant-messaging application, the report said.
The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., dropped 1.7 percent last week to $35.80, the third week of declines. The Standard & Poor’s 500 Index fell 0.2 percent for the week.
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