Company Overview - Crown Resorts Limited, formerly Crown Limited, is engaged in gaming and entertainment business. The Company operates in three segments: Crown Melbourne, Crown Perth and Aspinall’s Club. Crown Melbourne and Crown Perth offer customers a range of dining experiences. During the fiscal year ended June 30, 2012 (fiscal 2012), it served over 14 million meals to its customers. As of June 30, 2012, Crown Melbourne operated 2,500 gaming machines. As of June 30, 2012, Crown Metropol Melbourne hotel had 658 guest rooms.


Analysis - Crown Resorts Limited (CWN) has illustrated a robust performance for FY14 with normalized NPAT of $640.0 million, up by 35.2% and reported NPAT of $702.5 million, up by 43.1% before significant items. Reported NPAT of $655.8 million, up by 65.7% after significant items was witnessed.


Crown Melbourne and Crown Perth Normalized Revenue and EBITDA (Source – Company Reports)

The Company saw an improved trading in the second half in Australia and another strong year in Macau. The final dividend of 19 cps was declared. CWN has implemented a revised dividend policy which entails paying an annual dividend of the higher of 37 cents per share and 65% of normalized NPAT (excluding profits from associates but including dividends received from associates). Of course, the same is subject to the Company’s financial position.

With regards to Australian resorts performance, normalized revenue of $2,814.8 million, which rose by 1.4% was witnessed. Main floor gaming revenue of $1,505.7 million, up 1.4% and non-gaming revenue of $634.8 million, up 4.5% was seen. Further, VIP program play turnover of $49.9 billion, which declined by 1.5%, was noticed. Normalized EBITDA of $803.4 million, up 2.0% and reported EBITDA of $909.0 million, up 15.4%, was witnessed by the Company. Melco Crown Entertainment Limited (MCE) was the major contributor to the growth with normalized NPAT $291.2 million, up 91.2% and reported NPAT $287.6 million, up 64.3%.

For Perth’s first six-star hotel, the Company is progressing well and the Crown Towers Perth is expected to open in 2016. The 1,500 space car park is expected to open in May 2015.

Another update with respect to Heston Blumenthal’s, the three Michelin starred The Fat Duck restaurant, is the temporary relocation to Crown Melbourne in early 2015 for a six month visit. Heston and his team will open Dinner by Heston Blumenthal, in the same location as the temporary The Fat Duck at Crown Melbourne. Also, Gradi, a modern interpretation of a classic Italian pizzeria featuring specialties from Chef Johnny Di Francesco was to be opened in September 2014.
CWN would have undertaken over $2.8 billion of capital expenditure projects on the Melbourne and Perth properties from F10 to F17.


Investment in Large Scale Tourism Attractions (Source – Company Reports)

Crown Melbourne operates 2,500 gaming machines and has approval to operate 500 table games. It has internationally renowned designer boutiques and retail outlets. Further, the entertainment facilities include a multi-screen cinema complex, a bowling alley, and an interactive entertainment auditorium. On the other hand, Crown Perth has approval to operate 2,200 gaming machines and 270 table games. Its large-scale entertainment facilities include the 2,300-seat Crown Theatre Perth.

In line with the earlier legislation to permit the issue for restricted gaming license for the Crown Sydney Project by New South Wales Parliament, the Company recently got the restricted gaming license from the Independent Liquor and Gaming Authority. Crown Sydney will feature ~350 luxury hotel rooms and suites, world-class VIP gaming facilities, luxury apartments, conference rooms, etc. and is expected to open in November 2019 subject to commencement of gaming under the restricted gaming license. Other updates include extension of the Melbourne Casino License from 2033 to 2050.


Crown Melbourne and Crown Perth VIP Turnover (Source – Company Reports)

The Crown Sydney appears to offer New South Wales and Australia once-in-a-lifetime tourism infrastructure opportunity, as per CWN. The six-star luxury Crown resort on Sydney’s harbor will help attract many tourists.

CWN has signed an agreement with a subsidiary of the international Chinese diversified property group, Greenland Holdings Group, to jointly prepare a detailed proposal to develop the Queen’s Wharf precinct in Brisbane. CWN’s experience and expertise with Greenland’s property development experience will form a consortium to prepare a proposal for the Queen’s Wharf Brisbane Project. A successful bid will enable CWN and Greenland to jointly develop a luxury integrated resort at the Queen’s Wharf Precinct.  

Another recent announcement entails the acquisition of a 34.6 acre vacant site on Las Vegas Boulevard by a majority-owned subsidiary. CWN is expected to have majority ownership with total equity investment of about US$400 million to US$500 million.


Las Vegas Resort Site (Source – Company Reports)

CWN’s MCE showcased a result that was based on solid underlying financial performance steered by its mass market table games business at City of Dreams, though market conditions weakened during the fourth quarter. CWN received dividends of $94.4 million from MCE wherein $68.6 million was from the special dividend of 2013 and $25.8 million for the quarter ending 31 March 2014. An implementation of US$500 million stock repurchase program has also been approved by MCE. MCE’s studio City is also to be opened in mid-2015 with world-class entertainment attractions, TV Studio, multi-purpose arena and other amenities.
MCE through Melco Crown (Philippines) Resorts Corporation is expected to open City of Dreams Manila in Q4 2014 having 950 Rooms, three International hotel brands, and other amenities. For City of Dreams Phase 3, CWN is expanding the integrated resort in Cotai. The same is expected to open in 2017.

The City of Dreams operates approximately 500 table games and approximately 1,400 gaming machines. It further hosts Franco Dragone’s show, The House of Dancing Water, and proffers The Bubble audio-visual experience and Club Cubic experience. CWN’s Mocha Clubs present a network of gaming lounges with more than 1,200 gaming machines.

CWN has recently acquired three Bombardier jets at a cost of approximately US$100 million (including refurbishment costs) which will replace its existing fleet of Gulfstream jets and will provide private jet service to Asian VIP customers. The Company has also acquired Betfair Group plc’s 50% equity interest in Betfair Australasia in August 2014. CWN also holds a 24.5% equity share in Cannery.

CWN has committed un-drawn bank facilities of $1,073.1 million as at 30 June 2014 and the current debt ratings appear to be stable.


Crown Resorts Limited Debt Maturity Profile (Source – Company Reports)

For the period of 1 July to 12 October 2014, the main floor gaming revenue increased by 2% on the pcp for the Australian Resorts Combined. VIP program play was as per the pcp but at a low win rate. The Company has proposed an integrated resort in Sri Lanka for opening in 2018. Further, MCE is exploring opportunities throughout Japan. The Company has lot of expectations from the Asian customer base. In July 2014, a $200 million National Philanthropic Fund was announced through a joint commitment by the Crown Resorts Foundation and the Packer Family Foundation.

Macau appears to be an interesting gaming destination and the development of Studio City Macau and the fifth hotel tower in City of Dreams Macau add to the Company’s benefits. 



Macau Casino Map – Cotai (Source – Company Reports)

However, a recent news with regards to Chinese government’s squelching on corruption appears to have an impact on “premium mass” customer segment for Melco Crown in which CWN holds a stake. With low cash splash in Macau casinos and smoking bans in China, a decline in earnings is expected. Owing to said reasons, there was also a 23% decline in Macau gambling revenue in October 2014. Melco witnessed a 10% fall in revenue to $US1.1 billion in the three months ended September 30 and adjusted earnings before interest, tax, depreciation and amortization fell 10 per cent to $US305.7 million. The revenue growth is expected to recover by 2016.


Crown Daily Chart (Source - Thomson Reuters)

In spite of the above, the overall strategy and business focus seems to engage us further. The progress of the Crown Towers Perth project, the Crown Sydney project, the Queen’s Wharf Brisbane bid and the Las Vegas site development; and awards and accolades such as the recent one for Crown Melbourne in London appear to be fascinating. Accordingly, we put a BUY recommendation for this stock at the current price of $14.11.

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