NewsBite

Packer’s Melco Crown loses shine as competition grows in Macau

Analysts have warned that competition from rivals will dent any uplift for James Packer’s Melco Crown Macau investment.

Macau
Macau

James Packer’s Macau investment might be set to enjoy stronger market fundamentals but analysts warn that increasing competition from rivals will dent any uplift for Melco Crown.

The Asian gaming team at investment bank UBS has predicted a potential demand recovery in Macau in the near term.

The team, led by Angus Chan and Jeany Wu, outlined in a wide- ranging report on Macau that it was time to invest in a potential rebound at the Asian gaming hub.

“Official data shows fewer Chinese officials have been arrested since the second half of 2015, implying the impact of China’s anti-corruption campaign on VIP demand is unlikely to worsen incrementally,” Mr Chan said.

S&P Global Ratings also said yesterday that it expected the Macau market to grow between zero to 10 per cent in 2017. But the ratings agency added that given the amount of new supply, that growth rate could still see revenues at individual casinos fall due to cannibalisation from new facilities.

An expected demand recovery might not be enough to boost Mr Packer’s Macau investment, Melco Crown Entertainment. Mr Packer’s Crown Resorts, in which his private investment arm has a 53 per cent stake, recently cut its holding in Melco Crown from 34 to 27.4 per cent.

The UBS team said it believed that Melco Crown’s rivals — Wynn Macau, MGM China and Galaxy Entertainment — could outperform the sector, while Melco Crown was likely to underperform.

“Melco Crown Entertainment will face strong competitive pressure in Cotai, particularly in the premium mass segment,” he said.

The analyst cut his price target on Melco Crown by 31 per cent to $US13.30 and flagged that it expected a lower earnings contribution from its new mass market casino Studio City. UBS said it now expected the 2016 earnings before interest, taxes, depreciation and amortisation contribution from Studio City to fall from $US162m ($213m) to $US119m.

UBS cut its price target on Crown Resorts from $12.59 to $12.30 because of an expected fall in earnings from its Macau investment.

UBS analyst Matt Ryan outlined in a client note on Crown Resorts that the equity accounted contribution from Melco Crown would fall to $73m this year. The contribution was $161m in 2015 and $288m in 2014.

S&P Global Ratings affirmed its long-term BBB corporate credit rating on Crown Resorts and removed the long-term rating on the company from “CreditWatch with negative”, which it installed after Crown announced a demerger of its Australian and international assets.

“We consider the quality of cash flows generated from Crown’s Australian assets broadly offset the loss of scale and diversification following the demerger of the group’s international assets,” S&P credit analyst Graeme Ferguson said.

Read related topics:James Packer

Add your comment to this story

To join the conversation, please Don't have an account? Register

Join the conversation, you are commenting as Logout

Original URL: https://www.theaustralian.com.au/business/companies/packers-melco-crown-loses-shine-as-competition-grows-in-macau/news-story/f9d3f63caf62eecda0d4334b14a52692