Stock Preacher

Melco Crown Entertainment Limited (Nasdaq: MPEL)

Melco Crown Entertainment Limited (MPEL), formerly Melco PBL Entertainment (Macau) Limited, is a developer, owner and, through its subsidiary Melco Crown Gaming, operator of casino gaming and entertainment resort facilities focused on the Macau market, an ex-Portuguese colony off the Southern coast of China in Far East Asia. Melco Crown Gaming is one of the six companies licensed, through concessions or sub-concessions, to operate casinos in Macau. The Company owns and operates Crown Macau and Mocha Clubs, a non-casino based operation of electronic gaming machines. Its other operations include Taipa Square Casino, City of Dreams, The Macau Peninsula Site and The Macau Studio City Project.

The Company’s CEO, Lawrence Ho, is the son of Stanley Ho, entrepreneur in Hong Kong and Macau sometimes nicknamed “The King of Gambling,” reflecting the government-granted monopoly he held of the Macau gambling industry for 40 years through the “Sociedade de Turismo e Diversões de Macau” (STDM) business syndicate. The Company was incorporated in 2004 and is based in Central, Hong Kong and has a strong support from both of its major shareholders, Melco International Development Limited and Crown Limited. Melco is a listed company on the Hong Kong Stock Exchange and Crown is a top-100 company listed on the Australian Stock Exchange.

Source: Reuters.com, SEC Filings.

Financial Summary

For the second quarter of 2009, the Company’s net revenue was $215.8 million, down from $384.6 million for the comparable period ending June 30, 2008. On a GAAP basis, the Company recorded a net loss for the second quarter of 2009 of US$144.0 million, or $0.30 per share, compared to a loss of $5.7 million, or $0.01 per share, in the second quarter of 2008. The net loss in the second quarter of 2009 was negatively affected by non-recurring, pre-opening expense in the quarter of $61.3 million and a non-recurring $3.2 million write down in the carrying value of various project assets.

Cash and cash equivalents as of June 30, 2009, totaled $655.6 million. Total outstanding debt at the end of the second quarter of 2009 was $1.80 billion, of which $115.6 million represented loans from the Company’s two major shareholders. Total debt to shareholders’ equity as of June 30, 2009, was 74%. Capital expenditures for the second quarter of 2009 were $381.5 million, essentially all of which were attributable to the development of City of Dreams.

The Company’s stock price is down 43% over the past 12 months, compared with a drop of 90% for Las Vegas Sands and 62% for Wynn. However, due to some favorable achievements, the Company’s shares increased in the recent moths. MPEL’s stock has ranged from $2.27 to $8.45 over the past year.

Analyst Consensus

Source: http://markets.ft.com/tearsheets/analysis.asp?s=mpel

Investment Highlights

The so-called “Monte Carlo of the Orient,” Macau’s economy relies heavily on gambling; the gambling industry generates more than 40% of the GDP of Macau. The casino industry has been controlled by the STDM business syndicate monopoly for 39 years but, this changed in 2001 when casino licenses were offered to other casino operators, including American companies such as Las Vegas Sands, Wynn Resorts, Galaxy Entertainment Group, the partnership of MGM Mirage and Pansy Ho Chiu-king, and the partnership of Melco and PBL. The Las Vegas Sands Corporation opened in 2004 the first American owned casino in Macau – the Sands Macau. Currently, Macau has twenty-eight casinos, of which the biggest is the The Venetian Macau.

MPEL is one of six companies licensed, through concessions or subconcessions, to operate casinos in Macau, the only city in China where gambling is legal and which is an offshore financial centre, a tax haven, and a free port with no foreign exchange control regimes. The Company owns and operates Crown Macau resort that features a casino area of approximately 183,000 square feet with approximately 255 gaming tables and 95 gaming machines, as well as 216 hotel rooms, fine dining and casual restaurants, recreation and leisure facilities, and meeting facilities. MPEL operates eight Mocha Clubs in Macau with a total of approximately 1,345 gaming machines, each club with an average of approximately 150 gaming machines and gaming space ranging from approximately 5,000 square feet to 15,000 square feet. In addition, it owns and operates Taipa Square Casino with approximately 18,300 sq. ft. of gaming space and features approximately 31 gaming tables servicing rolling chip and mass market patrons.

The Company is developing the $2.1 billion City of Dreams project, an integrated urban entertainment resort, combining casino with hotel offerings, entertainment venues, a performance theatre, retail, and food and beverage outlets. The initial opening of City of Dreams happened at June, 1. The resort brings together a collection of brands, such as Crown, Grand Hyatt, Hard Rock and Dragone. The opening of City of Dreams features a 420,000 square feet casino with approximately 520 gaming tables and approximately 1,350 gaming machines; over 20 restaurants and bars; an array of some of the world’s retail brands, and an audio visual multimedia experience. The Crown Towers and the Hard Rock Hotel will offer approximately 300 guest rooms each. Grand Hyatt Macau, offering approximately 800 guest rooms, will be completed in the third quarter of 2009 and a Dragone inspired theater production is planned for the purpose-built Theater of Dreams. A final

planned phase of development at City of Dreams will feature an apartment hotel consisting of approximately 800 units.

With the opening of the Sands Macau, the largest casino in the world as measured by total number of table games,  in 2004 and Wynn Macau in 2006,  gambling revenues from Macau’s casinos were for the first time greater than those of Las Vegas Strip (each about $6 billion), making Macau the highest-volume gambling centre in the world. In 2007, Venetian Macau, at the time the second (now fourth) largest building in the world by floor space, opened its doors to the public, followed by MGM Grand Macau. Numerous other hotel casinos, including Galaxy Cotai Megaresort and Ponte 16, are also to be opened in the near future.

Macau has boomed in recent years, surpassing the Las Vegas Strip as the world’s most lucrative gambling market. Gaming revenue in Macau has increased at a five-year CAGR from 2003 to 2008 of 29.4% to five-year CAGRs of 5.3% and 0.0% for the Las Vegas Strip and Atlantic City, respectively. However, the recent recession, as well as a government clampdown on travel from mainland China, led to a slowdown in the $13.7 billion gaming industry. In the first quarter, gaming revenues fell 13%, and revenues for the year are expected to fall 8%. To help somehow the situation, visa restrictions were recently relaxed for residents of neighboring Guangdong province with gamblers now allowed to visit once a month compared with once every three months previously. In addition, Macau government said it would consider rules that might limit the number of tables and raise the age limit for casino customers. According to Deutsche Bank AG analysts, Macau gaming revenues will increase by 20% in 2010, the dominating growth driver being the ability by junket operators to lend.

In August, MPEL completed its follow-on public offering. The Company announced that the underwriters of its follow-on public offering have exercised in full their over-allotment option to purchase an additional 3,883,495 ADSs from the Company. The public offering price of the ADSs was US$5.15 per ADS. As a consequence of the full exercise of the underwriters’ over-allotment option, the total proceeds raised by MPEL from this follow-on public offering, after deduction of underwriting discounts and commissions, but before other offering expenses, increased to US$209.55 million.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

MPEL is below its 13-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

The MACD for the Company currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

MPEL is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

Shares of Macau casino operators have soared in the past month after gambling revenues in the enclave rose to a new high in August, signaling a faster-than-expected recovery in Macau. Galaxy rose 17%, SJM gained 16% and Melco Crown rose 6%, beating a rise of 2.5% in Hong Kong’s benchmark Hang Seng Index. During the past week, casino stocks were under massive selling pressure after Wynn Resorts, Limited reported financial results for the quarter ended September 30, 2009. Thus shares of Wynn plunged 6.7%, Las Vegas Sands Corp. fell 5%, MGM MIRAGE dropped 7% and Melco plummeted 6%.

Source: Thomson Financial, Yahoo! Finance, Analyst estimates.

Insider Trading Activity

Net Share Purchase Activity

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