Company Overview - Crown Resorts Limited is an Australia-based entertainment company. The Company's business segments are Crown Melbourne, Crown Perth, Crown Aspinall's and Wagering. The Crown Melbourne Entertainment Complex is an integrated resort in Melbourne, which has a casino, hotels, function rooms, restaurants, shopping and entertainment facilities. Crown Melbourne has three hotels, such as Crown Towers, Crown Metropol Melbourne and Crown Promenade Melbourne, and two day spas, such as Isika Day Spa and Crown Spa. The Crown Perth is an integrated resort in Perth, which consists of a casino, two international hotels, a convention center, and food and beverage outlets. Crown Aspinall's is a London casino located in West End district. The Wagering segment includes CrownBet, a corporate bookmaker. It also holds interests in Melco Crown Entertainment Limited, which operates casino/hotel properties in Macau, and interests in the Aspers Group, which operates four regional casinos in the United Kingdom.
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CWN Dividend Details
Ongoing Melco Crown’s pressure on group’s performance: Crown Resorts Ltd (ASX: CWN) fiscal year of 2015 NPAT fell over 17.9% year on year (yoy) to $525.5 million. Although gaming revenues from Melbourne and Perth delivered better results, Melco Crown’s gaming revenue pressure and asset impairments contributed to poor performance. Accordingly, Crown Resorts incurred an asset impairments of $61.3 million during FY15 while reported EBITDA declined over 11.4% yoy to $778.1 million in FY15. Crown’s share of Melco crown’s normalized NPAT reached $161.3 million in FY15, which is down by $129.9 million or 44.6% yoy, on the back of weak gaming revenue across the Macau market due to tough market conditions. Moreover, Macau’s gross gaming revenues also fell 26.8% yoy during the fiscal year of 2015, which witnessed more pressure during second half of 2015 declining by 37.0% yoy. As per the groups other business division’s performance, normalized EBITDA from Crown Aspinalls (the group’s London business) was also under pressure during the year, which fell over 9.9% to $31.7 million as compared to the prior corresponding period. Crown’s wagering businesses, Betfair and CrownBet EBITDA also made a loss of $16.0 million during the period. Turnover from CrownBet is on track while the group is rolling out major product enhancements with rebranding and promotional initiatives. On the other hand, cost efficiency measures drove Crown Melbourne’s normalized EBITDA by 17.8% yoy while the group’s Perth normalized EBITDA rose 5.3% yoy. Crown Resorts paid a final dividend of 19 cents per share, franked to 50%, resulting in the total dividend of 37 cents per share. Crown had committed undrawn bank facilities of $1,478 million as of June 2015 ending. Accordingly, Crown Resorts capex projects would be funded from these undrawn facilities and ongoing cash flow as the group has a decent financial position.
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Share of NPAT – Australia vs Macau (Source: Company Reports)
Domestic performance offset the Macau pressure to some extent: Crown Australian resorts, main floor gaming delivered a revenue increase of 5.5% yoy during fiscal year of 2015 while Non-gaming revenue improved by 4.7% yoy to $664.7 million. VIP program play turnover delivered 41.8% yoy improvement to $70.8 billion, driven by the group’s enhanced marketing efforts. Moreover, Super Tax exemption on VIP program play at Crown Melbourne coupled with decrease in the tax rate applicable to VIP program play from 12% to 9% at Crown Perth further boosted the VIP program play turnover. Crown Melbourne’s main floor gaming revenue surged 6.9% yoy while Crown Perth’s gaming revenue delivered only 2.6% yoy increase. Australian resorts revenue rose by 14.0% yoy to $3,209.2 million in FY15, driven by Main floor gaming revenue increase of 5.5% yoy to $1,588.6 million. Non-gaming revenue improved by 4.7% yoy to $664.7 million, while the VIP program play turnover delivered 41.8% yoy improvement to $70.8 billion. Meanwhile, Australian resorts normalized EBITDA surged 14.1% yoy to $916.5 million while overall operating margin slightly improved by 0.1% to 28.6%. Moreover, the group’s Australian resorts continued to deliver positive performance during July to October 2015 period, with the main floor gaming (excluding VIP program play revenue) revenues rising by 10% as compared to the earlier corresponding period while non-gaming revenue improved by 1% on a yoy basis. VIP program play turnover performance is on track while the division’s wagering and online businesses is generating a better revenue growth despite witnessing heavy start-up losses which includes marketing expenses.
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Australian Resorts VIP Turnover (Source: Company Reports)
Ongoing investments in its resorts to leverage growing demand from domestic as well as international tourism markets:Crown Resorts is heavily investing across its domestic markets to maintain its competitive edge. The group’s Melbourne division incurred a capital expenditure of over $853 million during FY11 to FY15 and forecasts to spend over $272 million from FY16 to FY18 (excluding new Queensbridge hotel tower capex). CWN entered into a joint venture with Schiavello for its proposed Queensbridge Hotel Tower which would comprise a six–star hotel with 388 rooms and over 680 apartments. Crown Perth incurred over $931 million during FY11 to FY15 while estimates to spend over $510 million during FY16 to FY18 mainly for Crown Towers Perth. Crown Sydney estimates to incur a heavy capex of $657 million from FY16 to FY18. On the other hand, CWN is also strengthening its properties and recently acquired 20% ownership interest in Nobu, the international restaurant and Hotel Company for USD 100 million. CWN expects that its Sydney Hotel Resort would be able to attract high net worth travelers. Crown’s Las Vegas Alon project would boost its luxury brand positioning in US. Meanwhile, Melco crown opened Studio City, which is Macau’s first Hollywood themed resort with cinematic entertainment offerings like Warner Bros family entertainment center and the world’s first Batman film digital ride. Melco crown intends to target the huge premium mass market from China through studio city as well as capture the potential booming Chinese tourism market.
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Investments in Large Scale Tourism Attractions (Source: Company Reports)
Addressable Market opportunity: Crown Melbourne Resort have contributed over $3.1 billion of economic value to the Victorian economy every year. The group has invested over $1.8 billion in upgrading and opening new attractions at Crown Melbourne Resort over the last ten years and is well positioned to leverage the growing tourism visits wherein Crown Melbourne witnesses over 20 million visits a year. As a result, Crown Melbourne’s hotels had occupancy rates of more than 90% for the entire year. Moreover, the growing outbound Chinese tourism would also benefit the group as Chinese are estimated to take over 200 million outbound leisure trips and spend over $US246 billion by 2020 as compared to 107 million outbound leisure trips in 2014. On the other hand, Crown is positive over its long term performance of its Macau segment despite short term pressure. Macau gaming market is over five times the size of the market as compared to the Las Vegas market. Moreover, Macau generated over 31.5 million visitors last year with majority from Mainland, in spite of overall market slowdown.
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China’s Outbound Tourism Market (Source: Company Reports)
Stock Performance: The shares of Crown Resorts fell over 9.2% (as of November 27, 2015) during this year to date while decreased over 8.4% in the last six months on the back of the poor fiscal year of 2015 performance impacted by the Melco Crown’s pressure. Melco Crown Entertainment Ltd (ADR) (NASDAQ: MPEL) shares also plunged over 38% during this year to date. However, MPEL reported US$208m normalised EBITDA in third quarter of 2015 which is slightly better than the consensus estimate. Even, the new Studio City property delivered modest mass table yields while the non-gaming segments showed hotel occupancy of more than 90% and forward bookings of more than 80% in November. Crown is also pursuing all options to revamp its growth and its VIP international marketing efforts would further drive VIP play turnover. The group’s Australian resorts business would continue to benefit from the exclusion of Super Tax on VIP program play at Crown Melbourne. Melco Crown’s Studio City project’s success could also act as a major growth booster to the group’s Macau performance in the coming periods. Moreover, Crown Resorts is well positioned to leverage the rising tourism opportunity especially from China outbound leisure travelers. Crown resorts is trading at a P/E of 21.79x and has a decent dividend yield of 3.2%. We believe that investors could leverage the recent correction opportunity to enter the stock, given its solid long term potential. CWN stock has been consolidating from the last three months and slightly reduced by 1.6% (as of November 27, 2015) and is expected to perform better given the potential. Based on the foregoing, we give a “BUY” recommendation on the stock at the current price of $11.64
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CWN Daily Chart (Source: Thomson Reuters)
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