Monday’s planned opening of City of Dreams (CoD) is looking less of a carnival occasion after the resort’s operator Melco Crown Entertainment (Nasdaq: MPEL) posted a USD35.3 net million loss in the first quarter of 2009.
MPEL is probably damned if it opens CoD and damned if it doesn’t. The company urgently needs some product in Macau with a mass-market component. This would help it diversify from its dependence on high volume, low margin, credit fuelled VIP betting at its only current casino property, Altira Macau. Some analysts worry, though, about how much cash MPEL will have to burn through in CoD’s operational costs before it can gain enough traction in the local market to make a positive addition to the company’s bottom line.
Simon Dewhurst, MPEL’s chief financial officer, answered that question during an earnings conference call for investors.
Mr Dewhurst stated that for the two months between the end of the March quarter and the 1st June opening of CoD, MPEL will have spent USD250 million on construction and pre-opening preparations. A further USD300 million would be assigned to running the casino for the rest of the year, and another USD200 million would be spent next year, he said.
MPEL blamed its Q1 2009 loss on an ‘abnormally high’ win rate among VIP baccarat players. The performance compared to a USD43.2 million profit for the same period last year.
Mr Dewhurst said despite the company’s deteriorating hold rate on its existing Macau table games business, it had experienced a rise in rolling chip volumes in every month of 2009 up to May.
MPEL’s co-chairman and chief executive Lawrence Ho told an earnings conference call for analysts that the fourth quarter of last year might have been a low point for the Macau market. “The market is clearly not totally out of the woods yet. There is [though] likely more room for growth,” he added.
Mr Dewhurst added MPEL would “minimise the potential for cannibalisation” between City of Dreams and Altira. Altira’s primary focus was “the rolling chip customer from China”, while City of Dreams would aim to be “a much higher margin business” focusing on what he described as the “premium mass-market customer”.
This sounds a bit different from what CoD’s President Greg Hawkins told the media last month, when he held out high hopes of bringing in new direct VIP customers to Crown Towers.
It may be that opening a casino resort is a bit like being a first time parent. You do your best but to some extent you’re making it up as you go along. AGI hopes CoD’s birth will be painless. The MPEL ‘mother’ has already had the benefit of plenty of gas from journalists and analysts. Let’s hope now she gets some nourishing air from the punters.
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