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  January 4, 2011 | 5 Pages Leisure & Entertainment Company Report Melco Crown Entertainment
 

January 4, 2011 | 5 Pages

Leisure & Entertainment

Company Report

Melco Crown Entertainment Ltd.

RAISING ESTIMATES; MAINTAIN BUY; CITY OF DREAMS TO UNDERGO MORE IMPROVEMENTS - SEVERAL HITTING IN THE CURRENT QUARTER; RAISING TARGET PRICE

David Bain

(949) 721-6651

dbain@sterneagee.com

(NNM: MPEL)

RATING: BUY

We are raising 4Q10 EBITDA to $115.9 million from $105.2 million to better coincide with our 4Q10 MPEL channel checked market share in Macau and Macau gross gaming revenue market numbers along with other checks. Our checks indicate that while hold at one of MPEL’s properties was somewhat weak in early December, it normalized on a full month basis. As indicated in our industry report out yesterday (“Macau Record Set…”), we raised our CY11 and CY12 Macau market statistics and are therefore also raising our CY11 and CY12 EBITDA estimates for MPEL to $496.2 million and $526.9 million from $461.2 million and $490.6 million, respectively. In early 1Q11, MPEL is adding 18 VIP tables to its flagship City of Dreams (COD) property in Cotai, which we believe will equate to an additional at least 4% in casino segmented/departmental EBITDA (prior to SG&A expense) at the property. Additionally, the Hard Rock Café and Poker lounge should open in late 1Q11 at COD, and Cubic should open by 2Q11. Cubic will be the only DJ oriented night-club within a Macau casino resort. With the addition of the Hard Rock Café, poker lounge and Cubic, we expect an increase in higher-end mass play on the currently less utilized second floor casino at COD. We believe COD’s House of Dancing Water show is currently at break-even levels, though a driver of incremental traffic. While we do not model for such, we expect the show to eventually hit profitability on a stand-alone basis as ticket sales should include an increasing percentage of mass (i.e., “paying”) patrons in CY11 versus the show’s opening months. With approved land available to add either another bank of hotel rooms or, should Government policy dictate ahead of such time, Coop sales adjacent to its COD property, we believe the Company is well positioned to capitalize on Macau growth, especially as additional critical mass hits Cotai, where it derives approximately 75% of its property EBITDA. Currently MPEL, a pure-play on Macau growth, is trading at just over 9x our CY12 EV/EBITDA estimates. Our new target price of $9 (versus $8.50) is based on 12x its CY12 operating forecast, less a multiple of corporate, less net debt, divided by shares out.

Fiscal Year Ends Dec

Rating:

Buy

Price: Last

$6.63

Price Target:

 

$9.00

52-wk Range:

 

$3.38-$6.86

Market Capitalization (M):

 

$3,549.0

Shares Outstanding (M):

 

535.3

 

Earnings Summary

 

FYE Dec

2010E

2011E

2012E

EBITDA

(M):

$412.5

$496.2

$526.9

 

EPS & P/E Summary

 
 

2010

2011

2012

EPS:

2010E

Prior

2011E

Prior

2012E

Prior

Q1

-$0.02

--

$0.01

-$0.02

$0.02

-$0.00

Q2

-$0.05

--

$0.01

-$0.00

$0.03

$0.01

Q3

$0.05

--

$0.02

$0.01

$0.03

$0.03

Q4

-$0.00

-$0.02

$0.02

-$0.01

$0.04

$0.01

Full Year

-$0.02

-$0.05

$0.06

-$0.02

$0.12

$0.05

P/E Ratio:

na

--

na

--

na

--

$0.05 P/E Ratio: na -- na -- na -- Source: Factset Important Disclosures regarding Price Target

Source: Factset

Important Disclosures regarding Price Target Risks, Valuation Methodology, Regulation Analyst Certification, Investment Banking, Ratings Definitions, and potential conflicts of interest begin on Page I of the Appendix Section.

800 Shades Creek Parkway

Suite 700

Birmingham, AL 35209

205-949-3500

Sterne, Agee & Leach Inc. is Member NYSE, FINRA, SIPC

MELCO CROWN ENTERTAINMENT LTD. (NNM: MPEL)

January 4, 2011

Melco Crown Entertainment Ltd. Quarterly Income Statement

 

(millions, except per share data)

DEC

Mar 10

Jun 10

Sep 10

Dec 10

DEC

Mar 11 Jun 11 Sep 11 Dec 11 Q1:11E Q2:11E Q3:11E Q4:11E

DEC

Mar 12 Jun 12 Sep 12 Dec 12 Q1:12E Q2:12E Q3:12E Q4:12E

DEC

FY09

Q1:10

Q2:10

Q3:10

Q4:10E

FY10E

FY11E

FY12E

Property Net Revenue

             

City of Dreams Altira Macau (Formerly Crown Mocha Clubs Peninsula Project Other Revenue

552.1

336.3

309.3

504.0

463.5

1,613.1

465.4

467.8

472.7

488.7

1,894.7

487.3

489.0

493.7

510.4

1,980.4

658.1

197.2

230.6

186.8

206.0

820.6

208.7

208.7

205.7

211.3

834.5

210.7

214.5

209.4

215.2

849.8

97.9

26.7

26.9

27.8

27.3

108.7

26.8

27.8

28.9

28.2

111.6

27.6

28.6

29.7

29.0

114.9

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

25.8

7.4

6.8

8.4

6.0

28.6

6.0

6.0

6.0

6.0

24.0

6.0

6.0

6.0

6.0

24.0

TOTAL NET REVENUES

1,332.8

567.6

573.6

727.0

702.9

2,571.1

706.9

710.4

713.3

734.2

2,864.7

731.5

738.1

738.9

760.6

2,969.1

% Seq.

-6%

42%

1%

27%

-3%

93%

1%

0%

0%

3%

11%

0%

1%

0%

3%

4%

% YoY

-6%

162%

166%

45%

76%

93%

25%

24%

-2%

4%

11%

3%

4%

4%

4%

4%

Property EBITDA

             

City of dreams Altira Macau (Crown Macau) Mocha Clubs Peninsula project

38.5

70.9

42.9

114.9

98.2

326.9

102.5

103.1

105.1

108.5

419.3

109.1

110.3

111.5

115.1

446.1

13.7

21.8

36.7

28.8

26.5

113.8

26.9

26.9

27.6

28.3

109.8

28.2

28.7

28.1

28.8

113.8

25.4

6.5

7.1

7.6

6.6

27.9

6.5

6.8

7.0

6.8

27.1

6.7

7.0

7.2

7.0

27.9

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Total Property EBITDA

77.7

99.2

86.7

151.3

131.4

468.6

136.0

136.8

139.7

143.7

556.2

144.0

146.0

146.8

151.0

587.8

%

YoY

-59%

268%

-794%

210%

812%

503%

37%

-58%

8%

9%

19%

6%

-7%

-5%

5%

6%

Corporate expense

39.9

12.3

13.3

15.0

15.5

56.1

15.2

14.7

14.3

15.9

60.0

15.7

14.8

14.4

16.0

60.9

%

of net revs.

3%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

2%

Total adjusted EBITDA

37.7

86.9

73.4

136.3

115.9

412.5

120.8

122.1

125.4

127.9

496.2

128.3

131.2

132.4

135.0

526.9

%

YoY

76%

308%

-408%

262%

4243%

993%

39%

-66%

8%

-10%

20%

6%

-7%

-6%

-6%

6%

Depreciation and amortization

217.5

76.1

76.0

78.1

84.0

314.2

84.0

84.0

84.0

84.0

336.0

84.0

84.0

84.0

84.0

336.0

%

of net revs.

16%

13%

13%

11%

12%

12%

12%

12%

12%

11%

12%

11%

11%

11%

11%

11%

Pre-opening costs

92.1

4.1

2.9

9.2

0.0

16.2

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

%

of net revs.

7%

1%

1%

1%

0%

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Stock-based compensation

11.4

1.1

1.4

2.4

3.0

7.9

3.0

3.0

3.0

3.0

12.0

3.0

3.0

3.0

3.0

12.0

%

of net revs.

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

Porperty charges and other

7.0

(0.5)

0.5

0.1

0.0

0.1

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

%

of net revs.

1%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

0%

EBIT

(290.3)

6.2

(7.4)

46.5

28.9

74.2

33.8

35.1

38.4

40.9

148.2

41.3

44.2

45.4

48.0

178.9

%

margin

nm

1%

-1%

6%

4%

3%

5%

5%

5%

6%

5%

6%

6%

6%

6%

6%

Interest and other income (expense) INCOME BEFORE TAXES Income taxes Adjusted Net Income

(36.5)

(18.8)

(22.7)

(30.8)

(29.0)

(100.8)

(29.3)

(29.3)

(29.3)

(29.3)

(121.2)

(29.3)

(29.3)

(29.3)

(29.3)

(117.2)

(326.8)

(12.6)

(30.1)

15.7

(0.1)

(27.1)

4.5

5.8

9.1

11.5

30.9

12.0

14.9

16.1

18.7

61.7

0.4

(0.2)

0.0

(0.1)

0.0

(0.2)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

(326.4)

(8.9)

(26.7)

25.1

(0.1)

(10.6)

4.5

5.8

9.1

11.5

30.9

12.0

14.9

16.1

18.7

61.7

Adjusted EPS

(0.67)

(0.02)

(0.05)

0.05

(0.00)

(0.02)

0.01

0.01

0.02

0.02

0.06

0.02

0.03

0.03

0.04

0.12

Diluted Shares Outstanding

487.8

531.7

531.8

535.3

535.3

533.5

535.3

535.3

535.3

535.3

535.3

535.3

535.3

535.3

535.3

535.3

Source: Company reports and Sterne Agee estimates

MELCO CROWN ENTERTAINMENT LTD. (NNM: MPEL)

January 4, 2011

APPENDIX SECTION

Company Description: Melco Crown Entertainment Limited was formerly known as Melco Pbl Entertainment Ltd. The Group's principal activities are to develop, own and operate casino gaming and entertainment facilities in Macau. The Group operates the gaming and hospitality business. The Group through its subsidiary MPBL Gaming operates six Mocha Clubs featuring a total of approximately 1,000 gaming machines, or slot machines.

IMPORTANT DISCLOSURES:

Price Target Risks & Related Risk Factors:

Risks to our investment thesis and the achievement of the price target include, but are not limited to, a company's failure to achieve Sterne, Agee & Leach, Inc., earnings and revenue estimates; unforeseen macroeconomic and/or industry events that adversely affect demand for a company's products or services; product obsolescence; changes in investor sentiment regarding the specific company or industry; intense and rapidly changing competitive pressures; the continuing development of industry standards; the company's ability to recruit and retain competent personnel; adverse market conditions, and negative regulatory and licensing environments. For a complete discussion of the risk factors that could affect the market price of a company's shares, refer to the most recent Form 10-Q or 10-K that a company has filed with the Securities Exchange Commission.

Valuation Methodology:

Methodology for assigning ratings and target prices includes qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition; and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry or company-specific occurrences. Sterne, Agee & Leach, Inc., analysts in the Leisure and Entertainment Sector base valuations on a combination of forward looking price to earnings multiples, price to revenue multiples, and enterprise-value-to-EBITDA ratios. EBITDA is defined as earnings before interest, taxes, depreciation, and amortization, and is used to gauge the viability of a company to service debt. Sterne, Agee & Leach, Inc. believes this accurately reflects the strong absolute value of earnings, the strong earnings growth rate, the inherent profitability, and adjusted balance sheet factors.

Regulation Analyst Certification:

I, David Bain, (949) 721-6651, hereby certify the views expressed in this research report accurately reflect my personal views about the subject security(ies) or issuer(s). I further certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by me in this report.

Sterne, Agee & Leach, Inc. Disclosure Legend as of January 4, 2011:

Company

Disclosure(s) – See Below

Melco Crown Entertainment Ltd. (MPEL - NNM):

1

1. Sterne, Agee & Leach, Inc. makes a market in the shares of the subject company.

2. Sterne, Agee & Leach, Inc. has, over the past 12 months, managed or co-managed a public securities offering or provided other investment banking services for the subject company.

3. Sterne, Agee & Leach, Inc. has various security accounts open for the subject company.

4. Sterne, Agee & Leach, Inc. provides administration for 401(k) plans for the subject company.

5. Sterne Agee Financial Services, Inc. has clearing agreements with the subject company.

6. The Sterne Agee analyst who has active coverage on this company owns a position in the subject company.

7. Sterne, Agee & Leach, Inc. or its affiliates beneficially own 1% or more of any class of common equity securities of the subject company.

Sterne Agee & Leach, Inc. expects to receive or intends to seek compensation for investment banking services from the subject company in the next three months. Sterne, Agee & Leach, Inc.’s research analysts receive compensation that is based upon various factors, including Sterne, Agee & Leach, Inc.’s total revenues, a portion of which is generated by investment banking activities.

Definition of Investment Ratings:

BUY:

We expect this stock to outperform the industry over the next 12 months.

NEUTRAL:

We expect this stock to perform in line with the industry over the next 12 months.

SELL:

We expect this stock to underperform the industry over the next 12 months.

RESTRICTED:

Restricted list requirements preclude comment.

MELCO CROWN ENTERTAINMENT LTD. (NNM: MPEL)

January 4, 2011

Ratings Distribution:

Of the securities rated by Sterne, Agee & Leach, Inc., as of December 31, 2010, 41.7% had a BUY rating, 57.3% had a NEUTRAL rating, 1.0% had a SELL rating, and 0% was RESTRICTED. Within those ratings categories, 2.04% of the securities rated BUY, 1.94% rated NEUTRAL, 0% rated SELL, and 0% rated RESTRICTED received investment banking services from Sterne, Agee & Leach, Inc., within the 12 months preceding December 31, 2010.

ADDITIONAL INFORMATION AVAILABLE UPON REQUEST: Contact Robert Hoehn at 1-212-338-4731.

Other Disclosures:

Opinions expressed are our present opinions only. This material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied upon as such. Sterne, Agee & Leach, Inc., its affiliates, or one or more of its officers, employees, or consultants may, at times, have long or short or options positions in the securities mentioned herein and may act as principal or agent to buy or sell such securities.

Copyright © 2011 Sterne, Agee & Leach, Inc. All Rights Reserved.

Sterne, Agee & Leach, Inc. disclosure price charts are updated within the first fifteen days of each new calendar quarter per FINRA regulations. Price charts for companies initiated upon in the current quarter, and rating and target price changes occurring in the current quarter, will not be displayed until the following quarter.

Price Chart(s):

be displayed until the following quarter. Price Chart(s): To receive price charts or other disclosures on

To receive price charts or other disclosures on the companies mentioned in this report, please contact Sterne, Agee & Leach, Inc. toll- free at (800) 240-1438 or (205) 949-3689.

S TERNE , A GEE & L EACH , I NC . Founded in 1901,

STERNE, AGEE & LEACH, INC.

Founded in 1901, Sterne Agee has been providing investors like you with high-quality investment opportunities for over a century. During the early years, our founders prominently established themselves in the financial securities industry in the southeastern United States. Today, we have expanded to serve all regions of the country. Sterne, Agee is headquartered in Birmingham, Alabama with offices in 22 states. Sterne Agee is one of the largest independent firms in the country. Sterne, Agee & Leach, Inc. is a division of Sterne Agee Group, Inc., which also includes The Trust Company of Sterne, Agee & Leach, Inc.; Sterne Agee Asset Management, Inc.; Sterne Agee Clearing, Inc.; and Sterne Agee Financial Services, Inc.—

www.sterneagee.com

EQUITY CAPITAL MARKETS

Ryan Medo

Robert Lake

Managing Dir., Eq. Cap. Mkts. Vice President

(205) 949-3623

David Lee

Yan Chao

Director, Equity Products Associate

(205) 949-3689

(205) 949-3622

 

(205) 949-3624

INSTITUTIONAL SALES

 

INSTITUTIONAL TRADING

 

Steve Pokorny

Head of Institutional Sales

(214) 702-4020

 

JT Cacciabaudo

Head of Trading

(212) 763-8288

EQUITY RESEARCH

 
 

Robert Hoehn

Director of Research

(212) 338-4731

CONSUMER

FINANCIAL SERVICES (CONT.)

Apparel Retailing & Toys

Life Insurance

Margaret Whitfield Jennifer Milan Jessica Gerberi, CFA

SVP, Sr. Analyst VP, Sr. Analyst Analyst

(973) 519-1019

 

John M. Nadel Dennis Zavolock

Mng. Dir.

(212) 338-4717

(212) 763-8211

Analyst

(212) 338-4748

(212) 338-4784

Mortgage Finance & Specialty Finance

Educational Services / Interactive Entertainment

 

Henry J. Coffey, Jr., CFA Jason Weaver

Mng. Dir.

(615) 760-1472

Arvind Bhatia, CFA Brett Strauser

Mng. Dir.

(214) 702-4001

 

Analyst

(615) 760-1475

Associate

(214) 702-4009

Property/Casualty Insurance

Footwear & Apparel

Dan Farrell

Mng. Dir.

(212) 338-4782

Sam Poser Kenneth M. Stumphauzer, CFA Jessica Bornn

Mng. Dir.

(212) 763-8226

 

Nitin Chhabra

Associate

(212) 338-4779

Sr. Analyst

(212) 763-8287

 

Associate

(212) 338-4721

 

GLOBAL INDUSTRIAL INFRASTRUCTURE (GII)

 

Leisure & Entertainment

David Bain

Mng. Dir.

(949) 721-6651

ACME &Latin America

Lawrence T. De Maria, CFA Ben Elias, CFA

Director SVP, Sr. Analyst

(212) 338-4704

(212) 338-4706

Sherry Yin

Associate

(949) 721-6651

 

Restaurants

Building, Power & Water Infrastructure

Michael J. Coleman, CFA

SVP, Sr. Analyst

(212) 338-4718

Lynne Collier

Mng. Dir.

(214) 702-4045

 

Philip May

Analyst

(214) 702-4004

 

Engineering and Construction

 

ENERGY

Chase Jacobson

VP, Sr. Analyst

(212) 338-4753

Exploration & Production

Industrial Components

Michael J. McAllister Tim Rezvan, CFA

Mng. Dir.

(212) 338-4783

 

Samuel H. Eisner

VP, Analyst

(212) 338-4705

Analyst

(212) 338-4736

 
 

Multi-Industry

Oilfield Services & Equipment

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Mng. Dir.

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David S. Havens Ryan Mueller

Mng. Dir.

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Analyst

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Associate

(212) 338-4732

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(212) 338-4729

FINANCIAL SERVICES

TECHNOLOGY

Asset Management

LED Supply Chain

Jason Weyeneth, CFA

SVP, Sr. Analyst

(212) 763-8293

 

Andrew Huang

Mng. Dir.

(415) 362-6143

Banks & Thrifts

Naghmeh Rabii

Associate

(415) 362-6141

Adam Barkstrom, CFA Blair Brantley, CFA Matthew Kelley Mike I. Shafir Matthew Breese Edward D. Timmons Ashby W. Price Brett Rabatin, CFA Kenneth James Peyton Green Zachary Wollam

Mng. Dir. Analyst Mng. Dir. SVP, Sr. Analyst Analyst SVP, Sr. Analyst Associate SVP, Sr. Analyst Analyst Mng. Dir. Associate

(800) 906-0577

 

Semiconductors

(800) 621-8635

Vijay Rakesh

Mng. Dir.

(312) 525-8431

(207) 699-5800

Ryan Brookman

Associate

(312) 525-8430

(212) 763-8239

 

(207) 699-5800

 

TRANSPORTATION, SERVICES & EQUIPMENT

 

(800) 203-5332

 

Jeffrey A. Kauffman Sal Vitale Kanchana Pinnapureddy

Mng. Dir.

(212) 338-4765

(888) 477-9602

VP, Analyst

(212) 338-4766

(877) 457-8625

Associate

(212) 338-4767

(615) 760-1474

 

(877) 492-2663

 

ADMINISTRATION

 

(615) 760-1468

 

Carlo Francisco

Supervisory Analyst Supervisory Analyst Mgr., Res. Admin. Editor Editor

(914) 434-3451

 

Robert Franks

(973) 377-5087

Marianne Pence

(205) 949-3618

Nathan Mitchell

(205) 949-3635

Elizabeth Koch

(615) 289-4122

Email Address for Sterne Agee Employees: first initial + last name@sterneagee.com (e.g., jsmith@sterneagee.com)