Cash In on Melco's Macau Mastery - Barron's

Barron's magazine says shares of Macau casino operator Melco PBL Entertainment (MPEL) are in for better times after a recent plunge.

Shares are down more than 50% on October highs as investors worried an overabundance of Macao casinos, combined with Melco's remote location, would prevent it from grabbing much market share.

Things have changed.

The Macau government recently said it would issue no more gambling licenses, effectively closing off the market to new competition. At the same time, Melco's Crown Macau boosted its market share from an anemic 1% to a stellar 18%. It did so by striking a controversial deal to attract VIP junkets. While the deal does cut into Melco's margins, the massive volume it brings in offsets lower profit levels. The VIP segment continues to grow rapidly in an emerging Chinese economy.

CEO Lawrence Ho is also branching out into South Korea and the Philippines, and is brining non-gaming revenue streams into the mix. "This is a play on Asia and specifically the Chinese consumer. We have minimal exposure to a U.S. recession. Will we continue to grow? Yes," he says. Shares trade for just 20x 2009 projected EPS. "In three years, you should get a double on this stock," T. Rowe Price analyst Joe Fath says.

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CNBC's Jim Cramer was less generous during a session of Mad Money this week. Asked about MPEL, he had this rejoinder: "I have hated it since $18. I wish I had hated it since $21. I don't want anything to do with gaming."

Comments

[PELUSIN]

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