Business Context and Reporting Period
Melco PBL Entertainment (Macau) Limited (MPEL) reported financial results for the third quarter and nine months ended September 30, 2007. The company operates casino gaming and entertainment resorts in Macau, primarily through its flagship property, Crown Macau (opened May 12, 2007), and the Mocha Clubs electronic gaming network. The reporting period reflects a transitional phase for Crown Macau as it became fully activated in late July 2007.
Key Financial Metrics
| Metric | Q3 2007 | Q3 2006 | 9M 2007 | 9M 2006 |
|---|---|---|---|---|
| Net Revenue | $113.4 million | $7.3 million | $178.8 million | $18.2 million |
| Net Loss | $(45.2) million | $(7.7) million | $(141.6) million | $(20.5) million |
| Loss Per Share (Basic) | $(0.037) | $(0.015) | $(0.117) | $(0.041) |
| Adjusted EBITDA | $(9.8) million | $(1.6) million | $(23.1) million | $0.5 million |
| Cash & Equivalents | As of Sept 30, 2007: $599.1 million (including restricted cash) | |||
| Total Debt | As of Sept 30, 2007: $614.3 million | |||
| Debt-to-Equity Ratio | As of Sept 30, 2007: 32% | |||
| Capital Expenditure | $163.6 million | N/A | $560.2 million | N/A |
Segment Performance (Q3 2007)
- Crown Macau: Net revenue of $97.6 million; Adjusted EBITDA deficit of $10.4 million. VIP rolling chip volume totaled $4.8 billion with a hold percentage of 2.3% (below the 2.7% expectation). Mass market table games hold was 17.4%. Hotel occupancy was 51.9% with an ADR of $233.
- Mocha Clubs: Gaming revenue of $19.8 million; Adjusted EBITDA of $5.9 million. Average net win per machine increased 4.3% to $220 per day.
Material Changes vs. Prior Period
Revenue increased significantly year-over-year, driven primarily by the opening of Crown Macau and a change in revenue recognition for Mocha Clubs following the acquisition of a gaming sub-concession in September 2006. Operating costs rose to $159.7 million in Q3 2007 from $16.9 million in Q3 2006, attributable to Crown Macau operations, amortization of the gaming sub-concession and land use rights, and pre-opening expenses ($3.3 million). The net loss widened due to these increased costs and depreciation/amortization charges associated with the new property and development projects.
Guidance, Outlook, and Management Commentary
Management expressed optimism regarding Crown Macau's growth, noting a market share of approximately 8% in combined VIP and mass table games despite new competition. The company is reconfiguring Crown Macau to increase VIP capacity (targeting ~187 VIP tables) and reduce mass market/slot capacity, with completion scheduled for December 1, 2007. A Gaming Promotion agreement with Ama International Limited is expected to accelerate operations by year-end.
City of Dreams Update: The integrated resort remains on budget and targeted for an initial phase opening by the end of March 2009. Construction is over 84% complete on the main podium, with hotel towers progressing to the 9th floor.
Capital Markets: In late October 2007, the company completed a follow-on public offering of 37.5 million ADSs at $15.50 per ADS, raising approximately $580 million in proceeds.
Risks: Forward-looking statements are subject to risks including Macau market growth, competition, regulatory changes, construction completion, and financing availability.
Investor Verification Checklist
- Hold Percentage Trends: Verify if the VIP rolling chip hold percentage (2.3% in Q3) improves following the property reconfiguration and Ama International partnership.
- City of Dreams Timeline: Monitor construction progress and potential delays to the March 2009 opening target.
- Liquidity vs. CapEx: Assess the sustainability of the $599.1 million cash position against the high capital expenditure rate ($560.2 million for 9M 2007) and $614.3 million debt load.
- Market Share: Confirm the 8% market share claim in the context of new entrants in the Macau market.
- Reconfiguration Impact: Evaluate the financial impact of reducing mass market/slot capacity in favor of VIP tables on overall revenue mix.