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MELCO-PBL (NASDAQ: MPEL) Mkt Cap: 5.8B

MELCO-PBL (NASDAQ: MPEL) Mkt Cap: 5.8B. Develops, owns and operates casino resorts in Macau, China One hotel and six slot parlors in operation Developing two new casino resorts Operates only in China. Supplier Power in Macau.

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MELCO-PBL (NASDAQ: MPEL) Mkt Cap: 5.8B

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  1. MELCO-PBL(NASDAQ: MPEL)Mkt Cap: 5.8B Develops, owns and operates casino resorts in Macau, China One hotel and six slot parlors in operation Developing two new casino resorts Operates only in China

  2. Supplier Power in Macau • Macau’s population is less than 500k, meaning that more people will be needed to support this rapidly growing city • In China, this shouldn’t be a problem

  3. Barriers to Entry • Macau is the only city in China where gambling is legal • Only six companies are authorized to run casinos on Macau • Enormous amount of capital needed for opening a casino resort • Lots of proprietary knowledge and industry experience is needed • Successful resorts need a good brand name

  4. Buyer Power • Customers are fragmented: no single customer can affect revenues very much

  5. Threat of Substitutes • Online gambling, new casino developments in other Asian countries • No real substitute for the Cotai Strip experience

  6. Degree of Rivalry • Only six firms • Rapid market growth at 25% CAGR since 2000 • Similar products among competing casinos  more rivalry

  7. Trends in Macau’s Gaming Market • Macau is a gambling boom town in China • Fastest growing gaming market in the world • 23% CAGR from 2000 to 2006 • By comparison, Las Vegas had a CAGR of 4% over this same time period • MELCO is in a rapidly growing industry

  8. Trends in Macau’s Gaming Market 1) Travel restrictions relaxed by Chinese Government • Individual Visitor Scheme (IVS) launched in 2003, allows greater movement throughout China • 15 minute helicopter ride from Hong Kong • 1 hour ferry ride from Hong Kong • Over 300m people within 3 hour drive • 3 billion people within 5 hour flight • MELCO is surrounded by lots of potential customers

  9. Trends in Macau’s Gaming Market 2) Rising Disposable Income in China • Rapidly growing middle-class in china  increased discretionary spending on leisure activities • Many Chinese love to gamble and view it as a way of investing • China’s economy growing at 8-10% annually • MELCO’s customers have lots money to spend

  10. Trends in Macau’s Gaming Market 3) Improved Infrastructure Easier access to island • Expansion of Macau International Airport • New ferry terminal opens in 2008 • New light-rail system opening in 2010 • Expanded facilities at Zhuhai border crossing • 22 new super-highways, 30,000 km of roads, 10,000 km of railway to be added to surrounding Guangdong province • Hong Kong to Macau Bridge, opens 2012 • MELCO’s customers have easy access

  11. Company Overview • Owns and operates Crown Macau Hotel Casino • Owns and operates “Mocha Clubs” • Developing the massive “City of Dreams” • Developing the “Peninsula Project”

  12. Company Overview • Crown Macau Casino Hotel • Opened May 2009 • “Five Star” high roller casino • Trusted “Crown Hotel” brand-name • 4.9% Market share of gaming revenue

  13. Company Overview • Mocha Clubs • Six café style slot-parlors • Strategically located throughout island • Cater to the local grind market • Over 1,000 slots in operation

  14. Company Overview • City of Dreams • Opens second quarter of 2009 • Massive underwater themed “must-see” attraction • Over 1,600 rooms in five towers • Aquarium and water shows • Mall • Apartments • Located right on the Cotai Strip (just like Las Vegas strip)

  15. Company Overview • Peninsula Project • Opens mid 2010 • Located next to ferry terminal, ideal for day-trippers

  16. 10K Report: Risks • Early stage of development and construction • Theyonly obtained primary revenue generating business, Mocha Clubs 2 years ago. They are incurring substantial costs and expenses in connection with the City of Dreams project, which is in the early stages of construction. In addition, they have not completed the acquisition of Macau Peninsula site which is subject to a number of conditions.   • Development and operations costs. • With so much construction occurring, all projects are subject to severe construction risk, which could have a material adverse impact on project timetables and costs andability to complete projects. They may exceed the budgeted costs or incur delays in opening one.

  17. 10K Report – Company Plans • Develop a comprehensive marketing program • Leverage the existing Crown and Mocha brands andcapitalizing on the marketing resources of founders. • Focus on building first-class facilities • Employ a highly experienced in-house project team and engaging qualified professionals with significant experience in construction projects and the gaming and leisure sector. • Utilize MPBL Gaming’s subconcession to maximize revenue • Create arrangements with other entertainment complex operators who are not concession or subconcession holders, under which MPBL Gaming will operate the casino facilities within such entertainment complexes.

  18. Strengths • Melco-PBL caters to each segment of the market: • VIPs/ Highrollers • Day-trippers • Mass-market tourists • Local regulars • Tailored products for different market segments

  19. Weaknesses • Development projects not opening until 2009 and 2010 • Will lose money until new projects open

  20. Opportunities • City of Dreams development project • Peninsula Development Project

  21. Threats • Possible supply glut • Demand depends on continued growth in China • Infrastructure as bottleneck for growth • Earnings growth sustainability after completion of developments • Labor shortage • Delayed opening • Competition from other Asian countries

  22. Competitors • LVS • Developing the Venetian Macau plus six other casino resorts • Overpriced P/E of 219 • Market Cap of 41.7B • WYNN • Already made its Macau casino • Relies on American market • Non-diversified product: high rollers only • Overpriced P/E of 103 • Market cap of 14.2B

  23. Competitors • MGM • MGM Grand Macau under development • Mkt Cap of 27.22B • Relies on US Market

  24. Financial Statements • underscore the risk of this investment • cash = 2% of market cap • Revenue steadily increases… • …but operating expenses are greater, keeping operating and net incomes down (and negative) • Looking forward: future development increase in revenue?

  25. Financial Statements (cont’d) • Debt ratio = .21 • Debt/Equity = .52 • Cash flow/total debt = 4.88 • Current ratio = 2.2 (up from .4 in 2004)

  26. Financials

  27. Key Ratios • Good current ratio, able to cover short term liabilities

  28. Key Ratios

  29. Revenue Forecast

  30. CAPM for MPEL Beta: 1.482 Alpha: -0.001

  31. DCF

  32. Summary of Why We Should Invest in MPEL • A rising tide lifts all the boats: gaming in Macau is a winning industry • Growth investment with huge potential • MPEL is a Chinese company and is insulated from a looming recession in America • MPEL has a balanced product portfolio, reducing risk and making profit from every sector

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