I'm sure the shorts are at work here. Nothing works for shorts quite as well as "fear of the unknown". The apparent unknowns being:
A) the cap ex bill for Sydney and Las Vegas,
B) China growth concerns coupled with the usual fear tactics as to whether its all over for Macau,
C) possible (IMO inevitable) smoking ban
D) Possible table number restrictions for the new Studio City.
E) James Packer has left the building.
However, the knowns are as follows:
A) Capex can be wound up or down according to revenue growth, so debt covenants remain solid. Interest cover for CWN is currently 5.77 x.
B) China is still growing at 6-7% pa which is compounded (meaning in relative terms its growing at the equivalent to 8-9% in 2005). China is moving into a consumer driven economy, which in time, will provide a large middle income demographic. This is perfect for the more mass focused destination that Macau is becoming with the opening $27 billion dollars worth of other new casinos in the next few years. Melco Crown's Studio City is the 1st off the blocks in October.
C) Smoking ban: Note, there were NO long term effects on gambling revenue numbers in other jurisdictions that have imposed a similar ban.
D) table number restrictions. Harder to gauge, but the recent volatility in revenue in Macau might be a catalyst to get the authorities to relent on table numbers restrictions, especially as this venue is more focused on entertainment revenue than gaming revenue. One thought, however, is that in the event that they were restricted to 150 vs 400 tables they want, MPEL (34% owned by CWN) would move some of its tables from City of Dreams and/or Altira to the new venue, but that would mean that they are moving tables from a venue they own 100% of, to one they own 60% of. This may mean doing a deal first to buy out the minority 40% owner of Studio City (a Hedge Fund Syndicate). NB, recently (May 2015) MPEL did refresh its financing, triggering the rumour that it was going to buy the minority out. Nothing has come of that, and I suspect that won't happen in the current environment.
E) Packer hasn't left the building, contrary to some rather strange reports of his departure as a result of some even stranger personal romantic preferences. Moving to US is about his kids first, who are resident in US and second, his enthusiasm for rejuvenating the Las Vegas opportunities. I also this that there is half a change of some sort of merge, eventually between CWN and MPEL, which would be better managed in the US than here in Australia.
All in all, I'd say the shorts have it right now, but they won't have it forever. The future is bright and I wouldn't let any Naysayer suggest otherwise.
In conclusion, the worst that can happen here is that they need to raise a bit of extra cash in 18 months time when Sydney starts it build.
However, the disconnect right now is coming from those who are saying that revenues will be where they are now (or even less) in 18 months time, making their debt vulnerable. This completely ignores that fact that Studio City will be contributing, Macau and China should be through its worst and showing signs of growth, and that the stock is already down 40% from its highs, notwithstanding excellent growth from its domestic operations.
