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Nomura Securities Assumes, Downgrades Melco Crown Enter. (MPEL) to Reduce

April 24, 2015 7:49 AM EDT
Get Alerts MPEL Hot Sheet
Price: $18.97 +0.42%

Rating Summary:
    15 Buy, 10 Hold, 1 Sell

Rating Trend: = Flat

Today's Overall Ratings:
    Up: 6 | Down: 14 | New: 24
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Nomura Securities downgraded Melco Crown Enter. (NASDAQ: MPEL) from Neutral to Reduce with a price target of $21.00 (from $29.00) in assumed coverage. The firm sees limited upside until Macau infrastructure improves

Analyst Harry Curtis commented, "We are assuming coverage of MPEL with a Reduce rating and $21 target price. Our target assumes that same-store EBITDA in Macau, MPEL’s biggest market, declines by 26% in 2015E and 2% in 2016E (excluding Studio City). We believe that a 14% and 28% decline in mass and VIP revenues, respectively, over 2014-2016E will lead to a 260bps compression in MPEL’s EBITDA margins."

Curtis expects a disappointing opening at Studio City. "Where we probably differ most from our sell-side colleagues is in the limited value we ascribe to MPEL’s new casino, Studio City, which should open in 3Q15," the analyst said. "According to Consensus Metrix, Street EBITDA for Studio City in 2016 is $457mn, versus our $198mn estimate. Our forecasts imply a first-year ROIC of 8.6%, which may not be greeted with enthusiasm by investors. This probably explains why our $21 target is nearly 20% below consensus."

The analyst said Macau infrastructure must improve before the company's ROIC on Cotai reaches 15%. "20% in both 2016 and 2017 that we calculate would be required to generate reasonable returns on new casino investment. The peninsula is often a mass of congestion, so until the light rail system is ready to transport a potential 40% increase in customers from key immigration checkpoints, we believe that demand growth will be below the growth in new capacity. This imbalance could last until 2018, when the light rail system may be operational."

The analyst also said the Philippines casino is too small to move the valuation needle.

For an analyst ratings summary and ratings history on Melco Crown Enter. click here. For more ratings news on Melco Crown Enter. click here.

Shares of Melco Crown Enter. closed at $21.92 yesterday.



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