Melco Crown Profit Tops Analyst Forecasts on City of Dreams

Melco Crown Entertainment Ltd., the casino venture between a son of casino mogul Stanley Ho and Australian billionaire James Packer, reported first-quarter sales and profit that exceeded analysts’ estimates.

Revenue rose 11 percent to $1.14 billion, led by the City of Dreams resort in Macau, the Hong Kong-based company said yesterday in a statement. Profit, or adjusted earnings before interest, taxes depreciation and amortization, increased 13 percent to $273.5 million from a year earlier.

Lawrence Ho, co-chairman and chief executive officer, said VIP customers had returned after a slowdown caused by a leadership change in China. Analysts had forecast revenue of $1.12 billion and Ebitda of $261.4 million, according to the average of nine estimates compiled by Bloomberg.

“I think ultimately a lot of our customers wanted to be assured and remove the uncertainty that there was any significant change in Chinese policy,” Ho said on a conference call.

Cameron McKnight, an analyst at Wells Fargo Securities, increased his estimate for annual earnings to as much as $1.16 a share from $1.05, based on casino results and costs controls.

City of Dreams, the company’s existing casino resort on Cotai, runs an entertainment show that features motorcycle stunts. Increased hotel supply and improved rail connections within China are also drawing more mainland visitors. Ho’s son Lawrence is chief executive officer of Melco Crown.

Melco shares rose 0.2 percent to HK$64.10, while the benchmark Hang Seng Index fell 0.1 percent.

Interest Costs

First-quarter net income fell to $53.8 million from $122.1 million a year earlier, the result of a charge related to debt retirement and interest costs to finance the new Studio City casino. Melco Crown is building the resort on Macau’s Cotai strip, the city’s equivalent of the Las Vegas strip, to compete with bigger rivals including Sands China Ltd. and Galaxy Entertainment Group Ltd., who have been adding new attractions to woo gamblers.

Net interest expense almost doubled to $41.4 million in the quarter, the company said.

Pushing Expansion

Melco is expanding both at home and overseas. In the Philippines, the company is partnering with Belle Corp. to develop and operate a casino resort in Manila which is expected to cost $1 billion. Belle holds one of four casino licenses in the Southeast Asian nation.

The country’s annual revenue from gaming may rise to $10 billion in 2017 from more than $2 billion last year once the Manila casino complex is operating fully, Philippine Amusement & Gaming Corp. Chairman Cristino Naguiat said on Jan. 15.

Melco’s Studio City resort in Macau is estimated to cost more than $2 billion to construct and it’s scheduled to open in the middle of 2015.

“Studio City and its Philippines investment should add incremental free cash flow and position the company for the implementation of a return of capital plan,” John Kempf, an analyst at RBC Capital Markets, said in a note today.

Casino revenue in Macau, the only place in China where casino gambling is legal, is expected to rise to $44.5 billion this year from $38 billion last year, according to Deutsche Bank AG estimates.

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