What happened? Crown Resorts Ltd's (ASX: CWN) share price fell nearly 3% in early trade on Monday to $12.85, nearly 22% from the 12-month high of $16.47 reached in the middle of 2014, and a similar way from the 2015 high of $15.90 hit in February.
What's going on? Crown's share price has been depressed over the last two months due to worry about the group's investment in Melco Crown, its Asian growth vehicle. A number of problems have arisen in Macau, where Melco operates the majority of its assets:
- The weak economic conditions in China have slowed customer travel to the region.
- The recent Chinese government crackdown on Macau's role in allegedly helping money launderers in their operations.
- The completion and commencement of a range of competing resort projects in the Macau market, which will increase supply, and limitations on expansion of table allocations for existing operations.
- A potential halt to the dividend if earnings remain depressed.
- A decline in hotel occupancy and margins ahead of a 35% increase in capacity.
- The release of the April 2015 revenue results for Macau, which came in 38.8% lower than a year earlier, the eleventh consecutive month of falling revenue.
The other issue facing Crown is around its landmark development at Barangaroo. Competitor Echo Entertainment Group Ltd (ASX: EGP) is threatening a legal challenge against Crown's proposed $2 billion hotel and casino based on the current scope creep of the project.
Echo's submission to the NSW Government was one of 30 released last week in an open feedback/response session for the public to comment on the addition of Crown's resort in Sydney Harbour.
What Now? A number of analysts have downgraded their near-term outlook for Crown's share price but long-term investors will know that Crown and Melco Crown have two of the strongest growth pipelines of any global casino groups. Crown is (either directly or via its subsidiaries) investing in new casinos in Macau, the Philippines, Las Vegas, and Sydney, and is in the running to develop new casinos in Brisbane and Japan. However the expected returns on these investments are still unknown.
The global gambling market is expected to continue growing, despite weakness in Macau, and Crown is in a prime position to benefit. In the meantime, the group pays a solid dividend around 3% and has an excellent management team.
