Melco Crown Entertainment's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Melco Crown Entertainment Limited (MPEL)

Q2 2012 Earnings Call

August 7, 2012 8:30 am ET

Executives

Geoffrey Stuart Davis – Chief Financial Officer

Lawrence (Yau Lung) Ho – Executive Co-Chairman and Chief Executive Officer

Analyst

Anil J. Daswani – Citigroup Global Markets Asia Ltd.

David Bain – Stern Agee & Leach, Inc.

Billy Ng – BofA Merrill Lynch

Cameron McKnight – Wells Fargo

Simon Cheung – Goldman Sachs (Asia) LLC

Praveen K. Choudhary – Morgan Stanley Asia Ltd.

Presentation

Operator

Geoffrey Stuart Davis

[Call Starts Abruptly] everyone for joining us today for our second quarter 2012 earnings call. On the call with me today are Lawrence Ho, Ted Chan, Constance Hsu, and Ross Dunwoody.

Before I get started, please note that today's discussion may contain forward-looking statements made under the Safe Harbor provision of federal securities laws. Our actual results could differ from our anticipated results.

I will now turn the call over to Lawrence.

Lawrence (Yau Lung) Ho

Thanks Geoff. And thank you everyone for joining. In the second quarter of 2012 we've reported EBITDA of US$204 million on approximately US$940 million of net revenue, delivering an EBITDA margin of approximately 22%. These results highlight the importance of our mass market segment and delivering a more stable earnings and cash flow stream. At City of Dreams, our mass table games GGR grew 34% year-on-year, slightly ahead of the market-wide growth rate, despite the introduction of new supplying in Kotai.

Our Rolling Chip segment continues to be impacted by our table optimization strategy. This strategy has resulted in further table is being shifted from Altira to City of Dreams, as well as the movement of some tables from VIP to mass, during the second quarter of 2012. Whilst somewhat disruptive as it is happening, this initiative should set us up favorably going forward. The majority of this table optimization strategy has been implemented, and we're optimistic that we should see a more efficient use of tables on a group-wide basis in the longer-term.

Pleasingly, Altira's table yields have stabilized and have reached a more competitive level. We now work towards ramping up those tables, which have been mobilized to alternative uses in order to drive future operating performance. We continue to proactively manage our table allocation to ensure we not only maximize near-term performance, but ensure that we have appropriate operational flexibility to take advantage of the changing landscape in Macau.

Notably, our performance in the Junket Rolling Chip segment on a volume basis was better than the estimated market-wide performance sequentially, despite the introduction of new supply. As another example of our commitment in driving our current portfolio of assets, we recently introduced a limited-run cabaret style show at City of Dreams. This better utilizes our Club CUBIC space, and provides another exciting entertainment offering to further differentiate City of Dreams.

Importantly for Melco Crown, the market-wide mass market table games segment continues to demonstrate strong year-over-year growth, expanding over 33% during the second quarter of 2012. This once again reinforces our mass market focus strategy, particularly at the higher end of the market, which we believe will provide a more stable, loyal and profitable customer base for the foreseeable future.

Visitation numbers from China continue to increase, with visitors from Chinese provinces and further abroad, such as Henan and Sichuan Province, delivering strong year-over-year growth, reflecting the broadening of the catchment area of Macau. We believe Macau is perfectly positioned to take full advantage of the increase in infrastructure spend and development in the region, improving access to the expanding addressable markets, particularly throughout China.

We remain fully confident in the future of Macau and believe its future success as well supported by the long-term growth and increasing consumerism in our core feeder market, China, as well as a progressive and stable regulatory environment, together with an exciting infrastructure and development footprint from Macau and the broader region. We look forward to playing a key role in the development of Macau into the leading leisure and tourism destination in Asia.

Now moving on to our exciting pipeline of future growth opportunities. We recently received our revised formal land grant for Studio City. We are very grateful that the Macau Government has given us this unique opportunity to bring another world-class integrated resort to Macau, which we believe will further drive and broaden Macau's appeal as a world-class entertainment and leisure destination. We have also received our permit from the Macau Government, which allows us to restart our construction work at Studio City, giving us the ability to expedite the development of this exciting project.

Studio City will aim to focus on the mass market segment, and will have approximately 1,600 5-star and luxury hotel room, approximately 200,000 square feet of retail, numerous food and beverage outlets, a range of uniquely themed interactive attractions, a multi-purpose theater, as well as capacity for approximately 400 to 500 additional gaming tables.

As mentioned previously, the property's location is one of its key competitive advantages. Not only is Studio City directly adjacent to the increasingly important Lotus Bridge immigration center. And it also has direct access to one of only three light rail casino stops in Kotai, and it enables to book in the North and the South of the Kotai strip. We also recently entered into a memorandum of agreement for the development and operation of an integrated casino resort in Manila.

This project represents an attractive opportunity to expand our footprint in Asia, allowing us to diversify and expand our sources of earnings and cash flow without impacting our ability to fully leverage our current portfolio of assets in Macau, or impact our ability to pursue either our strong pipeline with the development opportunities in Macau, or any other future regional opportunities. We look forward to keeping you updated on our progress in relation to both these important milestones for our company.

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