Melco Crown: Anti-graft campaign worse than 2008 financial crisis for VIPs

Lawrence Ho, the CEO of Melco Crown Entertainment, believes that the current anti-corruption campaign waged by Beijing is taking a bigger toll on VIP gamblers here than the 2008 financial crisis, as high rollers take a low profile attitude and spend much less. Macau Studio City, the company’s upcoming property in Macau, is set to open in the third quarter of 2015 with 400 tables.
In a meeting last week with Mr. Ho and Melco CFO Geoffrey Davis, Sterne Agee learned that the company’s management believes China’s anti-graft campaign is having a ‘deep psychological impact’ on VIP customers in Macau. ‘With the financial crisis, China was able to fuel the market with liquidity to establish a relatively speedy consumer recovery. With the anti-corruption campaign, high-end Macau patrons are taking a low profile approach to spending, and their state of mind is unlikely to change from any one lever’.
Mr. Ho and Mr. Davis admitted to the brokerage firm that the current situation in Macau is ‘in some ways’ worse than the financial crisis five years ago as high rollers have almost no positive catalyst in the near term. However, the gaming operator’s financial health is today much better than in 2009 when the effects of the financial crisis hit Macau. ‘Balance sheets are in far superior condition than during the financial crisis’, the report said.
Melco Crown’s management says that with the new openings in Cotai next year gaming revenues will grow, as Macau is a supply driven market, Sterne Agee wrote in a note to clients. Long-term sentiment is still bullish. The improvement of the Chinese economy is also a factor, with the company citing some mainland policy moves like the recent interest rate cut (to stimulate credit and investment) and loosening property curbs indicating that Beijing is turning the economy ‘back to business’. With a better-shaped economy, more gamblers will come to Macau and spend more.
Melco Crown is on the front line of the new openings in Cotai as its Studio City is confirmed to open its doors in the third quarter of next year, the senior officers told Sterne Agee. The property will start with 400 tables and is positioned to attract costumers “slightly below” City of Dreams’ premium mass gamblers, although Mr. Ho believes that Studio City is upscale enough to attract all customer types. The 24-hour opening of the Lotus Bridge border, close to Studio City, is also seen as a positive catalyst for the success of the property, according to Melco Crown. The new wave of casinos in Cotai will put 10 mega-projects into play that will double Macau’s gaming capacity up to 2017.