Asian casino operator Melco Crown Entertainment (
) hit another five-year high in Thursday trading, at one point
trading over 22 dollars before finally settling at 21.89. Is now
the time to take a chance with Melco?
[caption id="attachment_75411" align="alignright" width="300"
caption="Melco Crown's City of Dreams in Macao"]
Melco is up more than 100% from its summer lows, and up roughly
800% from the market bottom in 2009. While it's too late to take
advantage of the large percentage moves in Melco, this technically
strong stock could continue to move higher in the short-term.
Over the past few years, Melco's stock has surged on the back of
steadily strengthening gaming revenues from Macao. While Macao
growth has started to slow over the past year, Melco remains in a
strong position in the former Portuguese enclave thanks to its City
of Dreams casino and other properties.
However, given the slowing growth in Macao, and the Special
Administrative Region's exposure to
policy whims in Beijing
, the company has expanded its footprint into other parts of
After witnessing the gaming boom in Macao, other Asian nations
are keen to emulate the region's success. First, Singapore (
) allowed casino giants Las Vegas Sands (
) and Malaysian outfit Genting Reorts to open complexes in the
city-state. Now, the Philippines (
) is following suit by allowing Melco to tap the nascent Filipino
gaming market through managing
the new Belle Grande casino
, set to open next year.
Although the country currently only has one open casino -- also
run by Genting -- industry insiders are of the opinion that the
Filipino gaming market has the potential to be one of the world's
largest. Lawrence Ho, Melco's CEO, thinks that
gaming revenues in the Philippines
could match those of Singapore and Las Vegas in five to ten year's
If the Filipino gaming market is able to generate substantial
revenues, Melco is well-positioned to take advantage of this
For short-term traders, Melco is still attractive here; for the
past six months, the 50-day moving average has provided strong
support for Melco stock. As long as this holds, Melco will likely
continue to move higher.
However, long-term investors should wait for better entry points
into the name. At some point over the next six to twelve months,
negative news pertaining to Macanese gaming or the Chinese economy
will likely see Melco face a correction. At that point, at more
reasonable valuations, Melco would make for a more attractive
Author and family are long LVS and MPEL; we also own
protective puts and written calls.