High-Roller Delay Knocks Melco

Shares of Melco PBL slid 6% Monday after the gaming company delayed unveiling „VIP“ rooms at its first casino in Macau, which opened over the weekend.

„Crown Macau debuted on May 12 with elegant décor and a packed mass gaming floor. But the VIP rooms have yet to be opened. Slow ramp-up of VIP volume would hurt market share in early months,“ Deutsche Bank analyst Karen Tang said in a research note Monday.

While none of the private VIP rooms at Crown Macau were open, there was VIP play in the common areas, says one buyside analyst whose firm owns Melco shares.

The delayed opening of VIP rooms is a short-term disappointment for investors because Crown Macau is focused on high-rolling gamblers. At a Deutsche Bank conference last week, Melco management said the company planned to increase its VIP tables from 50 to a range of 70 to 80 because of high initial demand.

The buyside investor speculates that management delayed opening the VIP gaming rooms because the product wasn’t up to top quality yet.

Melco reports earnings Tuesday, and investors on the conference call will focus on the reason for the delay.

Tang, in her note, says the delayed opening could hurt Melco’s market share in Macau in May and June. Macau, China’s only legalized gambling region, recently surpassed Las Vegas as the world’s No. 1 gambling spot.

Melco and other Macau casino operators are being squeezed on the expense side, where commissions to junket tour operators are rising. The increase is largely because Las Vegas Sands is paying heftily to protect its market share at its Sands Macau resort and to ensure success at its Venetian Macau casino, which opens in August.

While Melco will also use junkets, the company is hoping to avoid some of this margin pressure by targeting high-rollers directly through the VIP database at Crown Casino in Melbourne, Australia.

Melco PBL is a joint venture between Hong Kong-based Melco International Development and Australia’s Publishing and Broadcasting, which owns the Crown Casino in Melbourne.

Tang, the Deutsche Bank analyst, downgraded Melco International (the Hong Kong-listed stock) from buy to hold in her note Monday.

Melco PBL shares, which trade on the Nasdaq, fell USD 1.01 to 15.56 in afternoon trading Monday.