If the Australian casinos of Crown Resorts Ltd (ASX: CWN) went a little quieter because of the weak domestic economy, at least it had its overseas operations to bolster earnings. Until now.
With Australians less inclined to spend on leisure activities like casino gaming, revenue growth for Crown's home-grown venues was not that high in FY 2014. A good portion of its total full year earnings was from its joint venture Melco Crown Entertainment Ltd (NASDAQ: MPEL), which has its "City of Dreams" casino in Macau as well as another soon to open in Manila.
Macau gaming market health check
Up until this year, Macau was booming with 35 casinos bringing in the mass players and the cashed-up VIP market. Then China closed off the flow of money by cracking down on corruption and general excessive consumption.
Now the gambling destination is looking at its sixth monthly revenue decline in a year and could see the first annual revenue decline ever in the market's history.
Melco Crown is not alone in this. All the big name resorts are feeling the pinch.
Near-term view
Crown Resorts has quite a long list of development plans by itself, with Melco Crown in Australia, Asia and Las Vegas over the coming years. This could give it decent long-term growth.
However, currently the Australian economy is slowing, making discretionary spending tighter. If the new Manila City of Dreams performs well after its grand opening early next year, that could give some hope. Right now, there aren't any other immediate growth catalysts.
Crown's share price
Crown's stock is down from its March highs of around $18, but is stabilising around $14 a share. It pays a 2.7% yield partially franked and is trading at 16 times earnings. It is priced at a relative discount to competitor Echo Entertainment Group Ltd's (ASX: EGP) 19 PE. Echo operates The Star casino in Sydney as well as The Treasury and Jupiter's casinos in Queensland. Its stock has risen about 32% in the last six months from earlier lows due to improving revenues.
Is time to pick up Crown stock? I think it may be ok to add to an existing position. It's not exciting times for the integrated resorts operator right now, so you have time to build up a stake with a long-term view.
