Melco Crown Entertainment Ltd. stocks had a significant drop after Wells Fargo & Co. and Deutsche Bank AG lowered estimates for Macua revenue growth. The American depositary of Melco fell 5.7% on such news. Shares now trade at $30.71, the lowest since September 12. The ADRs traded 4.7% lower in New York than they did in Hong Kong, which is the biggest discount in a month.
Wells Fargo analyst Cameron McKnight predicts gaming revenue growth will increase 1% to 5% this month. That number is down from a predicted 6.5%. Deutsche Bank made an annual prediction of 15%, but since lowered their numbers to 12%. These are the two reports which caused investors to sell off Melco Crown stocks.
About Melco Crown
Melco Crown is owned by two of the biggest names in global gaming these days. Lawrence Ho is the son of Stanley Ho, the Chinese "King of Gambling". James Packer is the son of Kerry Packer, an Australian media mogul. Though he lost half of the family fortune in the 2008-09 global recession, James Packer rebounded and is now the richest man in Australia. Melco Crown, a gaming company which owns several properties in Macau, is the chief reason Packer's fortunes returned.
In 2004, Stanley Ho's Melco International Development out of China and Kerry Packer's Crown Limited out of Australia entered into a partnership. The two companies agreed to pool resources to create Melco Crown, a gaming enterprise designed to exploit the burgeoning casino market in Macau. Melco Crown owns several resort and hotel properties around Macau, including City of Dreams and Altira Casino.
Ho and Packer are partnering with a Filipino billionaire to build a casino in Manila, while Melco Crown hopes to position itself to take advantage if the Japanese government approves casino gambling in Japan. Such a decision would make Japan the biggest gaming destination in Asia, outside of Macau (and surpassing Singapore). Meanwhile, James Packer continues to build his gaming empire in Australia. He also recently won final approval for a gaming destination in Colombo, Sri Lanka.
Union Gaming Downgrades Melco Crown Shares
Despite the overall rosy forecast for Melco Crown, the company was downgraded to "hold" by Union Gaming Group LLC. Union Gaming did the same to six other Macau casino operators.
Grant Govertsen of Union Gaming wrote in a research note, "We expect to see a string of negative headlines over the coming months that will keep pressure on shares and believe there is greater risk to the downside than the upside."
Union Gaming cut its annual price estimate for Melco Crown by a full 31%, down to $34 per share.
UnionPay Scandal Hurts Cash Flow
The Macau Monetary Authority continues its crackdown on the use of China UnionPay cards at Macau casinos. UnionPay credit cards are a favorite means of funding Macau's gambling activities, but they have been used to launder billions of dollars by seedy elements in and around Macau.
The Chinese central government finally figured out that billions of dollars in tax revenue was being lost through this corruption. Since then, local and national government has been working with the banks to curb the illegal use of UnionPay cards.
UnionPay Card Terminals Banned
The Macau Monetary Authority also ordered the pawnshops and jewelry shops which operate on casino floors are being required to remove their UnionPay card terminals (ATM machines) by July 1.
According to Macau's Gaming Inspection and Coordination Bureau, gambling revenue rose 9.3% in May 2014 over a year ago at the same time. Earlier, Bloomberg News had surveyed seven analysts, who had estimated an aggregate 14.5% increase.
Macau Gambling Enterprises
Despite the soft numbers, Macau remains the top gaming destination in the world by a large margin. No other city among the major gaming capitals is showing anything like the growth shown by Macau. Companies with a major investment in the former Portuguese colony's gaming venues, such as Melco Crown, Las Vegas Sands, and Wynn Resorts, are among the fastest-growing gaming companies in the world.
In Australia, this has allowed James Packer's Crown Limited Group to far outstrip traditional rival Echo Entertainment. In America, the Las Vegas Sands Corp. went from a second-tier Vegas Strip player to being (by far) the biggest of the American gaming entities, putting to shame MGM Resorts and Caesars Entertainment. Now, all the major gambling companies want a piece of Macau and its Cotai Strip developments, and the ones which succeed are likely to have a major advantage over the competition.
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