http://www.barrons.com/articles/less-chipper-macaus-melco-down-despite-strong-profits-1509648960
Less Chipper: Macau's Melco Down Despite Strong Profits
Dimitra DeFotis
Updated Nov. 2, 2017 2:56 pm ET / Original Nov. 2, 2017 2:55 pm ET
Shares of Melco Crown Resorts & Entertainment (MLCO) were down nearly 4% in late afternoon trading even though the Macau casino operator reported a 77% rise in third quarter profits.
The shares were paring deeper losses headed into the final hour of U.S. trading. Earlier in the day, Hong Kong-based Melco reported operating income of $192.7 million in the latest quarter on a U.S. GAAP basis, versus operating income of $108.9 million in the third quarter of 2016. Earnings per share beat analyst expectations by a healthy margin, according to FactSet, but quarterly results were complicated by a net loss attributable to non-controlling interests of US$3.3 million, which was related to Studio City and City of Dreams Manila.
Jefferies strategists Sean Darby and Kenneth Chan think Macau's gambling sector may have a much tougher time making money in the months ahead.
"... although Macau's casinos are experiencing a recovery, Macau's gaming sector looks to have hit diminishing returns ... it is unlikely that the casinos will return to the hubris enjoyed in 2013-2014 due to higher labor costs, a tougher regulatory environment and the fact that Macau has begun to experience diminishing returns due to a lack of available space and infrastructure. Looking ahead, two casinos will have licenses come up for renewal in 2020 and the other four in 2022. While all six players should be fine, it is possible that 5 year extensions are granted as a potential bargaining tool later on ..."
Melco's U.S. shares are up 72% this year, as are shares of Wynn Macau (1128.HK), while Sands China (1928.HK) shares are up 19% (Hong Kong returns converted to U.S. dollars). Las Vegas Sands (LVS) shares are up 26% this year, and MGM Resorts International (MGM) stock is up 8%.
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Shares of Melco Crown Resorts & Entertainment (MLCO) were down nearly 4% in late afternoon trading even though the Macau casino operator reported a 77% rise in third quarter profits.