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Promising 4Q Results for Melco

Posted on February 24th, 2011

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Melco Crown Entertainment MPEL has recently announced an overwhelming income generated in the last quarter of 2010 which exceeded current expectations. Last years income jump is by far the biggest record, to date, for the company. In the fourth quarter of 2009 they were only able to make $3 million with EBITDA adjusted. In the fourth quarter of 2010, however, their net revenue increased to 93%, which translates to $774 million and with adjusted EBITDA, the increase is still about $144 million—over $140 million difference than what was made in 2009. The strong growth that Melco showed has impressed the abalysts. What is even more impressive, however, is that the figures came from Melco’s existing casinos alone. Most companies get impressive results from expansion operations and not from their old established businesses. Melco proved that without expanding, a huge increase in profit would still be possible. Melco has achieved a 52% growth in total in the Macau gaming industry revenue in the fourth quarter of 2010.

Melco Crown Entertainment ’s accumulated income for the whole year of 2010 increased to $2.6 billion, with adjusted EBITDA, the incremented figure soared to a whopping $406 million, which is a mind-boggling increase from the company’s EBITDA of 2009. which registered only a disappointing $43 million.. “On the basis of the strong revenue growth and increased market share during the quarter, improved EBITDA margins, and our expectation of higher growth in the Macau gaming market relative to our expectations last year, we are placing Melco Crown under review while we adjust our model to reflect higher expected net revenue growth and transfer coverage to another analyst… ..We expect our adjustments will lead to an increased fair value estimate.” commented a stock analyst based in New York.

The combined revenue increase of the two top earners of Melco’s casinos (City of Dreams Casino & Altira Casino) totaled to 191% — 106% of which, came from the City of Dreams Casino with a net revenue of $489 million. 85% of the figure came from Altira Casino with a posted net revenue of $245 million. A gain in VIP rolling chip volume beefed up the growth to 65% and with hold percentage of 2.9% in the last quarter compared to 2.4% of the last quarter of 2009. The percentage difference in mass market drop of the City of Dreams Casino is 22% for 2010 and only 17.2% for 2009, whereas the mass market drop for Altira increased to an astonishing 98%. Their hold percentage matches also with that of City of Dreams Casino at 2.9% compared to a 2.3% way back in 2009. Melco’s management is expecting its income to close this year with much higher numbers than last year. In fact they have announced that they are expecting the VIP rolling chip hold percentages to be between 2.7%-3.0%. Mass market win rates are also expected to float between 20%-22% at the City of Dreams Casino and between 15%-17% at the Altira Casino.

Due to the new strategy employed by Melco’s management, their EBITDA has greatly improved. This was achieved by cleverly leveraging operating expenses and imposing tighter expense controls. The EBITDA margins have also shiftedas a result of the new strategy. Figures now show an EBITDA margin of 17% adjustment in the fourth quarter of 2010 when it was 18.7%, 12.7%, and 15.3% during the first, second, and third quarters of 2009 respectively. Since the beginning of the previous year, things have been looking up for Melco Crown Entertainment. Analysts believe that the comopany will continue to post gains for the following years.

With the unprecedented climb of 33% in the Macau gaming revenue in January alone, experts are expecting Melco Crown Entertainment to generate a steady growth revenue all throughout 2011, and the following years. The delay of the opening of the new Galaxy Macau Casino will also serve to fuel Melco’s amazing growth rates. However, experts have said that once the Galaxy Macau Casino opens, Melco’s performance could temporarily go down as the new casino will compete directly with them. In the long run, however, experts agree that both will be posting steady growth rates.