One of the stand out performers on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) so far today has been casino operator Crown Resorts Ltd (ASX: CWN). Its shares are up over 5% at lunch after it reported full year revenue up 3.8% to $3.6 billion and net profit of $948 million.
Although this appears to be an incredible result, I feel it is worth pointing out that this result does include a one-time gain of $602 million on the sale of part of its Melco Crown stake.
Using its normalised results which strips out one-time gains and the impact of any variance from theoretical win rate on VIP program play, earnings were actually down 22.7% year on year to $406 million. Still, this fell in-line with analysts' expectations which was pleasing to see.
Once again weak market conditions in Macau adversely impacted Melco Crown's results, with the company's share of its normalised net profit after tax dropping 64% to just $58.1 million. Investors will no doubt be optimistic that its plan to spin-off its international arm comes sooner rather than later.
Crown Resorts has radical plans to split into three separate entities. This will include an Australian arm, its international businesses, and also a property trust that includes 2,300 of its Australian hotel rooms. Management believes this will not only increase the market value of its local operations, but also allow it to boost its dividends.
I believe this is a great plan as it's clear to see what a drag its international operations are having on the company. I have little doubt that in time the company will have great success internationally, but it may be a few years before we see this happen.
Macau is the gambling capital of the world, but is currently going through a challenging spell due to government crackdowns, competition from Cambodia, and a slowing Chinese economy. However, Melco Crown is confident that a turnaround is coming. It believes that revenue trends will improve as Macau further evolves into a multi-faceted, mass market-focused destination.
All in all I feel Crown Resorts could be a great long-term investment. The company has strong tailwinds from increased tourism and a large runway for growth, not least from its proposed Sydney casino and Queensbridge Hotel Tower in Melbourne.
