Las Vegas Style in Macau Bolsters Melco as Shares RallyMatthew Kanterman
Melco Crown Entertainment Ltd., the Macau casino venture of entrepreneur Lawrence Ho and billionaire James Packer, rose for a fourth day in Hong Kong on prospects its version of the Las Vegas Strip in Cotai will boost profit.
Shares of Hong Kong-based Melco Crown climbed 0.7 percent to HK$92.10, extending this year’s rally to 115 percent. The U.S.-traded shares climbed 7.3 percent to $35.59 in November and have returned 111 percent this year. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in New York jumped 5.6 percent last month, as the iShares China Large-Cap ETF, the nation’s largest exchange-traded fund in the U.S., climbed 6.8 percent.
Melco is building a casino resort in an island off the Macau peninsula known as Cotai that will mirror the Las Vegas Strip. The company said it’s looking for “mass gamblers” after third-quarter earnings missed estimates as high-stakes bettors spent less. Profit forecasts for the next four quarters rose 45 percent from a year ago, compared with 23 percent for Las Vegas Sands Corp., the world’s biggest casino operator, according to Bloomberg Industries data.
“There’s been a shift in play from the peninsula, where the older casinos are, to Cotai, where Melco Crown is a major player,” Bryan Maher, an analyst at Craig-Hallum Capital Group LP in New York, said in a phone interview on Nov. 25. “Macau is the center of the gaming universe and Melco has 100 percent” of profit coming from there, he said.
Melco isn’t alone in investing in Cotai for its growth. It will debut its second casino on the strip in 2015 alongside Las Vegas Sands and Hong Kong-based Galaxy Entertainment Group Ltd., while MGM Resorts International and Wynn Resorts Ltd. plan to open new locations there in 2016, according to data collected by Bloomberg Industries.
“You have roughly $17 billion in investments going into the ground right now in Cotai where all of the major players have new projects under way,” Maher said. “They are all gearing up for this influx of affluent middle-class Chinese visitation coming to that area.”
China last month vowed to allow more private investment in the state sector, loosen its one-child policy and better protect farmers’ rights in the most sweeping reforms in two decades. The government also pledged to elevate the role of markets in the world’s second-largest economy. Data over the weekend showed the nation’s manufacturing growth beat analyst estimates in November, indicating economic recovery is sustaining momentum.
“If you do have a middle class that is growing pretty rapidly, that’s all good news to the Macau market,” John Kempf, a New York-based analyst at RBC Capital Markets LLC, said in a phone interview on Nov. 26.
If the measures are successful, more income will be transferred to average household, according to Qinwei Wang, a London-based economist at Capital Economics Ltd.
That “means that consumer spending will be much stronger in the future,” Wang said by phone on Nov. 27.
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 in Cotai, Co-Chairman Ho said in the earnings statement on Nov. 5. VIPs account for about two-thirds of the casino revenue that flows into Macau, the world’s largest gambling hub.
The company is expanding overseas in the face of land and labor constraints in Macau. Melco Crown has partnered with 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.
Giant Interactive Group Inc., which develops online games, surged 27 percent last month to $11.23, the most since 2008. A consortium led by its Chairman Yuzhu Shi and Baring Private Equity Asia offered to purchase the company on Nov. 25.
LightInTheBox Holding Co. dropped 23 percent to $7.10, the biggest drop since August. Fourth-quarter revenue will rise to between $75 million and $77 million, Beijing-based LightInTheBox said in a statement Nov. 19. That was below the $83.1 million mean estimate of four analysts compiled by Bloomberg.
The Hang Seng China Enterprises Index in Hong Kong gained 7.7 percent last month to 11,441.27, the biggest gain for the index this year. The Shanghai Composite Index of domestic shares advanced 3.7 percent to 2,220.50.
The Purchasing Managers’ Index was 51.4, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday. That’s the same reading as October, which was an 18-month high, and exceeded 24 out of 26 estimates in a Bloomberg News survey. A number above 50 signals expansion.