Ev ·

Event / Data Flash February 13, 2015

Melco Crown Entertainment (6883 HK, HOLD) 4Q14 results in line; Cotai project to open in 3Q15 4Q14 results in line. Melco Crown Entertainment (Melco) has reported 4Q14 operating figures, with net revenue of USD1,121mn (0% QoQ/ -20% YoY) and adjusted property EBITDA of USD279mn (-9% QoQ/ -29% YoY), in line with our expectations. Property EBITDA margin slipped 2.4 ppts QoQ (-3.4 ppts YoY) to 24.8%, dented by a smaller revenue contribution from the higher margin mass market, and a respective negative impacts of USD~5mn and USD10-15mn on EBITDA from higher staff retention costs and a lower mass market win rate. Adjusted for luck, its property EBITDA would have been approximately USD290mn, -11% QoQ/ -24% YoY. During the quarter, Melco's market share edged up 1.2 ppts QoQ to 13.9%, attributable to group-wide VIP revenue rising by 8% QoQ (-34% YoY) and mass revenue dropping by 7% QoQ (-2% YoY), compared with the industry's slip of 1.5% QoQ (-29% YoY) and slip of 18% QoQ (-16% YoY), respectively.

Donald Cheng +852-3926 8983 [email protected]

In terms of its flagship City of Dreams (COD), net revenue and adjusted property EBITDA came in at USD895.5mn (-2% QoQ/ -18% YoY) and USD258mn (-6.5% QoQ/ -26% YoY), respectively. The slip in EBITDA was attributable to a higher revenue mix towards the VIP gaming segment (8% QoQ/ -34% YoY), while mass revenue was -8% QoQ/ -2% YoY. As for Altira Macau, the property generated net revenue of USD173mn (+8% QoQ/ -30% YoY) and adjusted property EBITDA of USD14mn (-30% QoQ/ -61% YoY). Rolling chip volume and VIP revenue were +12.5% QoQ/ -24% YoY and +8% QoQ/ -34% YoY, respectively, aided by the addition of one of Macau's largest junkets (Suncity) in 4Q14. Management guided that the property will be adding another sizeable junket next week, which is expected to bolster volume going forward. Conference call key takeaways. (i) Management guided that Macau Studio City has received all the necessary construction permits required, and remains on budget and on schedule to open in 3Q15. Mass recruitment has started recently; (ii) Management expects the industry's 2015 gaming revenue to decline slightly YoY; (iii) City of Dreams Manila opened on February 2 this year, and management expects to provide operational data on the property's performance starting 1Q15; (iv) Management guided that Macau Studio City needs at least 400 gaming tables for the property to run at optimal levels. Maintain Hold. The counter is currently trading at an estimated ~12.5x FY15E EV/EBITDA, a slight discount to the average of ~13x for its Cotai peers. We believe the company possesses solid medium term growth prospects, supported by its flagship City of Dreams, the newly opened City of Dreams Manila and the rollout of value-accretive projects ahead (Macau Studio City and the fifth tower at City of Dreams). We maintain our Hold rating and target price at HK$68.08, in light of the gloomy backdrop with the continued weak revenue trend in the near term and potential margin erosion from rising labour costs. Risks: Rising operational costs, intensifying competition in Cotai, delays for its Cotai project.

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Event/Data Flash

Melco Crown Entertainment - Operational Data Review Group total 1Q13 2Q13 3Q13 4Q13 (in USD mn except otherwise indicated) Net revenue 1,144.9 1,295.0 1,252.7 1,394.6 Adjusted property EBITDA 294.9 350.8 339.0 394.4 Adjusted EBITDA margin % 25.8% 27.1% 27.1% 28.3% Adjusted EBITDA 273.5 330.1 315.2 369.0 Adjusted EBITDA margin % 23.9% 25.5% 25.2% 26.5% Rolling chip volume VIP table games win rate VIP revenue Non-rolling chip drop Mass market table games win rate Mass revenue City of Dreams

1Q14

2Q14

3Q14

4Q14

1,357.3 1,199.5 1,124.1 1,121.4 387.5 313.6 305.7 278.6 28.5% 26.1% 27.2% 24.8% 358.7 284.9 276.8 246.2 26.4% 23.7% 24.6% 22.0%

QoQ YoY (%) (%) -0.2% -19.6% -8.9% -29.4% -2.4 ppts -3.4 ppts -11.1% -33.3% -2.7 ppts -4.5 ppts

35,600.0 36,600.0 33,600.0 36,200.0 34,700.0 30,400.0 24,500.0 26,100.0 2.8% 3.1% 3.0% 3.0% 3.0% 2.7% 2.7% 2.7% 984.8 1,122.8 997.2 1,086.0 1,030.9 820.8 661.5 714.6

6.5% -27.9% 0.0 ppts -0.3 ppts 8.0% -34.2%

1,203.2 30.1% 362.2

1,282.0 30.5% 390.7

1,395.1 32.2% 449.3

1,508.2 34.7% 523.4

1,502.9 34.2% 514.3

1,527.6 34.6% 529.0

1,521.8 36.2% 550.8

1,490.1 34.3% 511.0

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

QoQ YoY (%) (%) 895.5 -1.8% -18.3% 258.0 -6.5% -25.8% 28.8% -1.5 ppts -2.9 ppts

836.0 246.9 29.5%

967.0 300.2 31.0%

958.3 1,095.8 298.4 347.7 31.1% 31.7%

1,074.0 341.4 31.8%

Rolling chip volume VIP table games win rate VIP revenue

23,800 2.7% 642.6

24,800 22,800.0 25,600.0 3.1% 3.0% 3.0% 768.8 684.0 768.0

24,600 3.0% 738.0

22,100 17,300.0 18,000.0 2.7% 2.7% 2.8% 596.7 467.1 504.0

Non-rolling chip drop Mass market table games win rate Mass revenue

1,038.4 32.5% 337.5

1,109.9 32.8% 364.0

1,213.2 34.8% 422.2

1,303.0 37.6% 489.9

1,299.1 37.5% 487.2

1,330.8 37.4% 497.7

1,340.4 38.9% 521.4

1,315.4 36.4% 478.8

-1.9% -2.5 ppts -8.2%

1.0% -1.2 ppts -2.3%

Slot handle Slot machine win rate Slot machine revenue Games win/unit/day (HK$) Average number of slot machines

1,026.6 4.4% 45.6 342.0 1,480.0

1,196.2 4.0% 47.3 328.0 1,584.0

1,242.5 3.9% 48.0 362.0 1,441.0

1,304.2 4.0% 52.7 418.0 1,371.0

1,489.7 3.8% 57.1 536.0 1,183.0

1,511.4 3.8% 57.1 457.0 1,373.0

1,551.7 3.8% 58.5 449.0 1,417.0

1,351.1 -12.9% 3.9% 0.2 ppts 53.0 -9.4% 427.0 -4.9% 1,350.0 -4.7%

3.6% -0.1 ppts 0.6% 2.2% -1.5%

1Q13

2Q13

3Q13

4Q13

1Q14

2Q14

3Q14

4Q14

Net revenue Adjusted EBITDA Adjusted EBITDA margin % Rolling chip volume VIP table games win rate VIP revenue Non-rolling chip drop Mass market table games win rate Mass revenue Mocha Club Net revenue Adjusted EBITDA Adjusted EBITDA margin % Slot machine revenue Games win/unit/day (HK$) Average number of slot machines

911.6 276.0 30.3%

-1.2% -0.4 ppts -2.4%

Net revenue Adjusted EBITDA Adjusted EBITDA margin %

Altira Macau

967.5 290.2 30.0%

-2.1% -1.9 ppts -7.2%

4.0% -29.7% 0.1 ppts -0.2 ppts 7.9% -34.4%

229.8 34.8 15.1%

181.6 15.6 8.6%

160.4 20.3 12.7%

QoQ YoY (%) (%) 173.1 7.9% -30.1% 14.2 -30.0% -60.6% 8.2% -4.5 ppts -6.3 ppts

11,800.0 11,800.0 10,800.0 10,600.0 10,100.0 2.9% 3.0% 2.9% 3.0% 2.9% 342.2 354.0 313.2 318.0 292.9

8,300.0 2.7% 224.1

7,200.0 2.7% 194.4

8,100.0 12.5% -23.6% 2.6% -0.1 ppts -0.4 ppts 210.6 8.3% -33.8%

196.8 15.9% 31.3

181.4 16.2% 29.4

265.0 40.1 15.2%

164.8 15.0% 24.7 1Q13

278.8 41.4 14.8%

172.1 15.5% 26.7 2Q13

242.4 29.8 12.3%

181.9 14.9% 27.1 3Q13

247.6 36.0 14.5%

205.2 16.3% 33.4 4Q13

203.8 13.3% 27.1 1Q14

2Q14

3Q14

34.0 8.5 25.1%

37.2 9.8 26.2%

38.6 11.2 29.0%

38.8 10.8 27.8%

39.5 11.3 28.6%

36.5 8.6 23.7%

38.5 9.9 25.7%

38.5 214 2,000

37.7 207 2,000

40.1 218 2,000

38.5 246 1,700

39.8 316 1,400

36.1 331 1,200

36.6 306 1,300

174.7 18.4% 32.1

-3.7% -14.9% 2.2 ppts 2.1 ppts 9.4% -3.9%

4Q14

QoQ YoY (%) (%) 32.8 -14.8% -15.5% 6.5 -34.3% -39.8% 19.8% -5.9 ppts -8.0 ppts 31.2 -14.7% 261 -14.7% 1,300 0.0%

-18.9% 6.1% -23.5%

Source: Company data, HTI

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Investment rating system

Stock (12 months)

Sector

Address:

Rating

Remark

Buy

Target price +15% of the current price

Hold

Target price within 0% to +15% of the current price

Sell

Target price at 0% or more below the current price

Overweight

Relative performance over current price ≥10%

Neutral

Relative performance within current price -10% to +10%

Underweight

Relative performance below current price ≤-10%

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