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Crown Resorts Video




 

Stock Of the Day  - Crown Resorts (BUY)

FY2015 Half Year Results for Crown Resorts (CWN) revealed a stellar performance with 2.3% rise in normalised net profit after tax (NPAT) attributable to the parent of $322.4 million and the reported NPAT of $262.4 million which was down 31.4% before significant items. Asset impairments of $61.3 million affected the results. The reported NPAT attributable to the parent of $201.8 million indicating a dip of 47.2% after significant items was noted. CWN declared an interim dividend of 18 cps.

 
Crown Resorts Limited 1H15 Results (Source – Company Reports)

The performance by Australian resorts entailed pleasing results despite the prevailing submissive consumer sentiments. The normalised revenue of $1,626.7 million was found to be up 16.1%. There was a 3.5% rise in the main floor gaming revenue of $784.2 million. In fact, a 2.4% surge in non-gaming revenue of $341.9 million was also noticed. The highlight was the VIP program play turnover of $37.1 billion which surged 61.4% although at a lower win rate than the previous year. 20.6% rise in normalised EBITDA of $478.2 million was another highlight while the reported EBITDA of $456.8 million was down 5.6%. As sensed earlier, the Melco Crown Entertainment Limited (MCE) performance was found to be little weak as outlined by soft market conditions in Macau. CWN’s share of MCE’s normalised NPAT of $110.4 million dipped $30.2 million or 21.5%. The Company’s share of MCE’s reported NPAT was of the order of $85.3 million, also down $62.2 million or 42.2%.

Melbourne property (with VIP revenue growth of 86.4%) was the high spot while Macau witnessed weakness alongside other properties performing principally in line with expectations. Momentum continued for the Australian properties from 2H14 into 1H15. Despite the weakness at Macau, Melco Crown Entertainment offers promising Philippines exposure capable of mitigating a further slowdown in Macau. The result overall indicated that 1H FY15 trading environment has improved with domestic main gaming floor’s trending higher. Growth was noticed for Australian casinos’ EBITDA of $478.2 million over prior corresponding period with EBITDA margins shifting 110bps higher relative to 1H14.




MCE - Studio City, Macau (Source – Company Reports)

The City of Dreams Manila opening in February 2015 was with a bang with 15k average daily visitation. CWN reported that operations have been chiefly local-market focused. It has been noticed that slot machines feature with 240 tables is below the target of 270 tables indicative of further expansion awaited. However, bet sizes have been reported to be growing in line with those of CWN’s peers. The hotel occupancy is also noted to be about 60% ahead of 12 to 18 months full ramp-up.


Investment (Source – Company Reports)

CWN’s net operating cash flow was $285.8 million as compared to last year’s cash flow of $304.1 million. The net debt position (excluding working capital cash of $156.2 million) at 31 December 2014 was $2,437.8 million after net capital expenditure of $324.5 million, licence fee payments of $345.0 million, dividend payments of $138.4 million, net investment payments of $206.0 million, cash injections from non-controlling interests of $72.4 million and the effect of exchange rates. The total liquidity, excluding working capital cash of $156.2 million, was $993.5 million, represented by $243.0 million in available cash and $750.5 million in committed undrawn facilities, as at 31 December 2014. CWN’s corporate costs were $43.5 million indicating a rise of $21.8 million in comparison to the prior corresponding period. These are owing to the costs with regards to the Queen’s Wharf Brisbane project, the Crown Resorts Foundation, Crown’s share of the costs of the production of a short advertising film and other business development costs. We note that the balance sheet with capability to endure dividends through FY17 stands out. Of course, risks relating to smoking ban, table allocations and relicensing do prevail.


Crown Resorts Chart (Source - Thomson Reuters)

On 17 March 2015, the Company announced that it has lodged a prospectus with the Australian Securities and Investments Commission (ASIC) for an offer of Crown Subordinated Notes II for listing on ASX to raise about $400 million. Earlier, the Company witnessed an effective issue of Crown Subordinated Notes in September 2012. The notes have now been defined to be due for repayment in April 2075 subject to the Company’s right to redeem the same at any time from July 2021 or earlier. This will bestow an entitlement of quarterly interest payments upon the holders at a rate equal to the Bank Bill Rate and a margin (subject to payments being deferred in certain circumstances). Further, the offer is underscored as a part of CWN’s ongoing capital management strategy with an intention to utilize the profits for financing Crown Sydney, Crown Towers Perth and other growth projects.

Positivity also carries the day with the recent news about NSW government and developer Lend Lease reaching an agreement to allow CWN and Lend Lease to proceed with the $2 billion hotel casino in Sydney for delivery in 2019. Specifically, Lend Lease, CWN and the Barangaroo Delivery Authority have reached an agreement with regards to a revised concept plan for the Barangaroo South development in Sydney.

Accordingly, we put a BUY recommendation for this stock at the current price of $13.01.