Melco Crown’s Prospects In Asia
For American gamblers, Macau is more of a planned destination trip than a weekend getaway, like a quick trip to Vegas. As a result, any impact from legalized online gambling or the emergence of casinos across the U.S. willaffect Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) much less than it would, say, Las Vegas Sands Corp. (NYSE:LVS) or Wynn Resorts, Limited (NASDAQ:WYNN).
The majority of Macau’s visitors are from mainland China. Enter China’s rapidly rising middle class, which is already larger than the entire U.S. population and will likely be the key driver of Macau’s growth. Back in 2000, only 4% of China’s households were considered middle class. That number had soared to 66% by last year.
Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is also looking to be the industry leader in Manila, the capital of the Philippines, with plans to build one of the first casinos in the area next year. There will be an all-Asian lineup in Manila , where the four casinos scheduled to be completed next year are the work of China-based companies and Asian billionaires.
Up until now the majority of the casinos in the Philippines have been run by the government. This is about to change, as Melco and other operators look to further tap the fast-growing Asian gambling market. The Filipino market is expected to attract both China’s high rollers and Asia’s rising middle class.
The Philippines’ annual revenues could easily reach $3 billion by the end of 2015, which would be closing in on the Vegas Strip and Singapore markets, which both bring in about $6 billion in gambling revenue a year.
Although Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)’s share price has soared 125% during the past 12 months, it is still trading at only 13.5 times operating cash flow, which is in line with Las Vegas Sands Corp. (NYSE:LVS) and well below Wynn Resorts, Limited (NASDAQ:WYNN)’s 23.4 times.
Action to take –> The beautiful thing about casinos is that they operate in a highly insulated and regulated industry. As well, the business is capital-intensive — Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)’s Philippines casino is expected to cost more than $1 billion.
Melco Crown is the best way to invest in the fast-growing Asian gambling industry and rising middle class. While legalized gambling in the U.S. will in all likelihood have a meaningful impact on U.S.-based casino operators, I fail to see how it will have a much of an effect on Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)’s overseas casinos.
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This article was originally written by Marshall Hargrave and posted on StreetAuthority.
