Melco Crown Entertainment announced solid second quarter results that were above analysts expectations and consensus estimates. Revenue increased 38% to $1.3 billion (above consensus of $1.2 billion) and adjusted EBITDA increased 62% to $330 million (well above consensus of $283 million), as the company’s City of Dreams casino on the Cotai Strip continued to take share from casinos on the Macau peninsula.
Adjusted EBITDA margins increased 380 basis points to 25.5%, driven by a greater mix of revenue from higher-margin mass-market table game and slot revenue and a leveraging of fixed costs. Revenue for the City of Dreams casino increased 41% (outpacing industry-wide revenue growth of 16%) to $967.0 million, driven by a 30% increase in VIP rolling chip volume and a 35% increase in mass-market table drop.
Adjusted property EBITDA for the casino increased 63% to $300.2 million. In our view the property benefited from increased visitation in the second quarter because of the opening of a 2,000-room-plus Sheraton hotel tower adjacent to the property and effective marketing to VIP and premium massmarket customers in mainland China. The company remains on track to open a second casino on the Cotai Strip, Studio City, in mid-2015, which will provide the company with the second-largest presence on the rapidly growing Cotai Strip, with only Las Vegas Sands having a larger presence. The company’s VIP-centric casino, Altira, improved performance significantly in the second quarter, with revenue increasing 34% to $279 million and adjusted EBITDA increasing 59% to $41 million.