James Packer, chairman of Crown Resorts Ltd (ASX: CWN) has big plans to create an international resort brand called "City of Dreams" and wants to extend its footprint into NSW, Queensland and a number of Asian countries like Vietnam, Japan and South Korea.
The company operates the Crown casinos in Melbourne and Perth, as well as being a 33% joint venture partner in Melco Crown Entertainment Ltd (NASDAQ: MPEL), which has integrated resorts and gaming venues in Macau and the Philippines.
In addition, Crown also intends to break into the Las Vegas market by developing a site it purchased through a consortium this year.
Development pipeline needs patience
Although the list is impressive and would see the company expand greatly, it won't be done quickly. Each new venue can cost over $1 billion to develop as well. Yet at the same time, the company's Australian casinos haven't seen much growth recently, so growing the Asian business is a high priority.
This is more of a mid to long-term play which has interesting potential, but investors will have to be patient with it.
Stock movement and valuations
The stock has worked its way back up to around $14, yet is still far from its March $18.00 highs. It's trading at 16 times earnings, which is slightly below its past PE average.
It's priced lower compared to the 25 PE for Echo Entertainment Group Ltd (ASX: EGP), the operator of The Star casino in Sydney and the Brisbane and Gold Coast casinos. Echo itself is recovering from a heavy share price decline and rising strongly on improving revenues.
Outlook
Crown's earnings growth is forecast to be around 8% annually over the next two years, which is well down from its past five-year average, so I wouldn't be surprised if Crown's share price stayed at current levels longer, possibly even weakening some more after the recent revenue and earnings setbacks.
Casinos in Macau are seeing lower revenues as well, thanks to the Chinese government's crackdown on excessive consumption there. Crown gets a good portion of its earnings from its joint venture, so that could weigh upon the share price as well.
I think Crown Resorts has good prospects over the next 5 – 8 years as it builds its brand overseas, but investors will definitely need a long-term view. That does give shareholders enough time to slowly build positions and take advantage of lower share prices.
