Crown Resorts Ltd's (ASX: CWN) Macau casinos may be set for a soft year in 2015. The integrated resorts operator's joint venture company Melco Crown Entertainment released its fourth quarter results in its interim report yesterday, showing a 20% decline in net revenue for the three months ended 31 December 2014.
Reported quarterly net earnings were US 5.7 cents per share, down from US 13.5 cps for the fourth quarter a year ago. The fall in revenue and earnings stem from the anti-corruption and money laundering crackdown of the Chinese government, which caused a dramatic drop in Macau's visiting VIP players, and a ban on indoor smoking.
This may cause concern for Crown Resorts' investors because the earnings and dividend distribution from Crown's one-third stake in Melco Crown was a substantial source of its previous annual net profits. Crown Resorts' share price declined steadily during 2014 to a low of $11.66. The stock has recovered to just over $14 since late January.
Melco Crown CEO Lawrence Ho said, "I think at the end of last year, I was probably one of the more optimistic people, saying that the market should be up, high single digits, [or] single to mid-single digits. I think I would revise down my whole year forecast to be probably… slight negative growth year-on-year."
Melco Crown has a new gaming and entertainment venue, Studio City, scheduled to open later in 2015, so there might be a boost in revenues. Still, Melco Crown now has to adjust its business to attract more mainstream average players for more revenue volume. Tourism is rising in Macau, so all is not lost.
Judging from the share price gains in Melco Crown and Crown Resorts since the earnings release, the bad news may already be discounted in the stocks. I would think the big earnings hit has been already taken, so investors may start adding to positions in Crown to lock in low prices and hopefully see better near-term returns.
Melco Crown's new City of Dreams casino in Manila may also help support earnings now that it has opened in the past month. 2015 may be a slow year of recovery for both companies, but that could be a welcome opportunity for Crown investors.
