Macau, known as “Las Vegas of the East,” has a gaming history stretching back more than three centuries. As the gaming liberalization continues, the Macau government will follow the policy of “moderate supervision, monitoring and control and healthy growth.” For investors interested in a pure Macau gaming play, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is a clear choice. Being one of the only few casino operators allowed in Macau and with continuous development in the Cotai Strip, Melco still has room for growth.
Growth drivers
Even after gaining over 46% this year, Melco can still go higher. Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) continues to enjoy solid growth from the mass market, especially with City of Dreams. Along with a record rolling chip volume, Melco continues to execute successfully for its ongoing table optimization strategy. Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is expected to benefit from improving transportation, such as the progress on the light rail system and border expansion, as well as the development of Hengqin Island and Hong Kong-Zhuhai-Macau Bridge.
Cotai Strip expansion
With the increasing importance of the Cotai Strip, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) continues to invest heavily into the area. Melco’s Studio City is on track to open in mid-2015 with expected design and construction costs remaining at $2.04 billion. Studio City is cinematically themed and designed to attract mass market visitors. As the Macau government continues to diversify away from gaming in the region, Studio City will be a perfect addition to the Cotai Strip with its entertainment and tourism functions.
Further, phase 3 expansion at City of Dream is expected to break ground before the end of the year. Within three years, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL)’s Studio City will be joined by new casinos and resorts from Wynn Resorts, Limited (NASDAQ:WYNN), MGM Resorts International (NYSE:MGM), SJM, Galaxy Phase II, as well as Las Vegas Sands’ Parisian Macau in late 2015. The war in the Cotai Strip has just started.
Competition
The VIP high-roller market had suffered due to the change in the Chinese government and the speculation regarding policy change in China. However, the VIP markets have shown improving numbers in the latest quarterly reports from casino operators in Macau.
Wynn Resorts, Limited (NASDAQ:WYNN) should strongly benefit from this improving trend as it relies more on high rollers than some of its competitors. While Wynn Resorts, Limited (NASDAQ:WYNN) had lost market share in Macau to Las Vegas Sands and Galaxy Entertainment since its market share peaked at 15.9% in 2008, Wynn is betting big with its $4 billion resort on the Cotai Strip, featuring gondolas shaped like dragons with snorting smoke.
On the other hand, MGM Resorts International (NYSE:MGM), with its $2.6 billion investment into the Cotai Strip, is expected to open its second casino resort in Macau in mid-2016. The new resort will include 1,600 hotel rooms, 500 gaming tables, and 2,500 slot machines, where about 85% of the gross floor area would be reserved for non-gaming activities. With its smaller land area in the Cotai Strip, MGM is aiming for quality and for entertainment and shows to boost traffic.
While both Wynn and MGM Resorts International (NYSE:MGM) are joining the party late in the Cotai Strip, their development focus collude with the Macau government’s goal to diversify the region away from gaming. On the down side, as the growing trend continues to shift away to mass market, investors may want to put Wynn and MGM on their watch list to see if both can compete with other mass market focused competitors.
Bottom line
For investors, Melco is a solid bet to benefit from its strong Cotai Strip presence with continuous development of City of Dreams and upcoming Studio City. With a growing mass market and recovering VIP revenue, as well as improving transportation, Melco Crown Entertainment Ltd (ADR) (NASDAQ:MPEL) is on the way to continuous revenue growth despite increasing competition.
The article Don’t Expect This Company to Slow Down originally appeared on Fool.com and is written by Nick Chiu.
Nick Chiu has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Nick is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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