Crown Macau from Flop to Winner - 8th September 2008

James Packer and Lawrence Ho, two sons of billionaires, opened a $US524 million casino in Macau in May 2007. It was a flop.

The empty building was “eerie,’ the 31-year-old son of casino magnate Stanley Ho said in an interview. Three months after Crown Macau’s grand opening, the two co-chairmen of Melco Crown Entertainment, its Hong Kong-based owner, decided it was time to “throw in a nuclear bomb,’ Ho said.

Packer and Ho ripped out two-thirds of their low-limit gambling tables and four-fifths of the slot machines to make space for high rollers. The casino shifted its focus from middle- class gamblers to VIP players who spend at least 1 million patacas ($130,000) per visit.

The strategy handed Melco Crown 15% of Macau’s casino business in less than a year as it seeks to take VIP share from larger establishments run by Las Vegas Sands and Wynn Resorts.

“Before, Crown Macau couldn’t even break even,’ said Billy Ng, a Hong Kong-based analyst at JPMorgan Chase. “Now it looks like it’s making a profit.’

Melco Crown’s shares, which dropped 42% this year, will climb 67% over the next 12 months, according to analysts’ estimates compiled by Bloomberg. That compares with predictions of a decline for Wynn and a 1.4% gain for Sands, based on Aug. 12 stock prices.

The shares were unchanged at $US6.75 in Nasdaq Stock Market trading on Aug. 12.

`Undervalued stock’

“The stock is undervalued,’ Michael Perna, an analyst with AAD Capital Management LP in California, said in an interview. The fund manager bought 1.55 million Melco Crown shares, according to a second-quarter regulatory filing. He’s since continued buying, he said.

Melco Crown, which had a loss of $US178.2 million ($205,00) in 2007, posted a profit of $US43.2 million in the first quarter of this year. It will report a second-quarter profit when it releases earnings today, according to the average estimate of four analysts surveyed by Bloomberg.

The company’s new focus on big spenders is also being applied to its $US2.1 billion resort development called City of Dreams being built in Macau’s Cotai Strip district. Among the VIP- oriented changes planned for the casino, scheduled to open next year, is a reduction in slot machines to 1,500 from 3,500, Ho said, which appeal primarily to middle-class gamblers.

“We want to be a higher-value proposition than’ Las Vegas Sands’ Venetian Macao across the street, he said.

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