Melco Crown(MPEL US):Studio City opening:100%tables in mass area

Mass-only casino

    100% of the 200 new gaming tables will cater the mass market in Studio City, 23% of which are located in premium mass area “Signature Club”. Planned VIP gaming area is on the second floor, which is not opened this time. With additional 50 gaming tables from Jan 2016, we see the possibility of introducing VIP business. The management highlighted that most of the additional gaming tables will cater the mass market as well.

    Most of the offerings completed

    Among 1,600 new hotel rooms, 1,000 rooms are branded under Celebrity Tower and the remaining 600 rooms under Star Tower (higher-end than Celebrity Hotel). On its first day, 1,600 rooms were fully launched and occupancy rate was c.80%. 95% of the retail area and all entertainment offerings (Golden Reel, the House of Magic, Batman Dark Flight, etc.) were fully operational.

    We like full mass story, but 4Q15E margin is a concern

    Melco Crown now trades at 29.1x FY16E P/E and 12.5x EV/EBITDA. After the tour and opening ceremony, we turned more positive on Studio City for its full exposure on mass market gaming differentiated by full range of non-gaming amenities. However, we maintain our NEUTRAL rating on potential earnings downside in 4Q15E due to margin squeeze from pre-opening expenses, implied by a large gap in our and market estimates. We will revisit our estimates and rating when it reveals more information during 3Q15E results announcement on Nov 5, 2015.