City of Dreams Manila
Melco Crown Philippines Resorts Corp. is the best-performing casino stock in the world this year. To punters playing baccarat at the company’s City of Dreams venue in Manila, that’s no surprise.
“Foreign players have multiplied and they’re mostly Chinese,” said Fernando, 49, a Filipino supply manager who has been gambling at City of Dreams – which boasts gold-tinted windows and a children’s theme park – since it opened officially in 2015. He didn’t want to give his surname. “There are times that you need to wait to get a seat at the tables and when there’s a thick crowd it’s not rare that you’re playing with a Chinese tourist.”
China is key to this year’s 125 percent surge in shares of Melco Crown Philippines, a subsidiary of Hong Kong gaming behemoth Melco Resorts & Entertainment Ltd. The close connection with Macau puts Melco Crown Philippines in the box seat to benefit from President Rodrigo Duterte’s bid to ease tensions with Beijing. At the same time, an anti-corruption drive in the former Portuguese colony is sending gamblers south to Manila.
Ironically, the company’s link to the Chinese betting enclave – Melco Resorts owns four casinos in Macau – has been a factor in its stock’s success. The Philippines’ embrace of phone gambling, banned in Macau last year, is also a big plus for Chinese punters.
Since the end of 2015, Melco Crown Philippines has returned almost eight times more than a Bloomberg Intelligence index of global casino stocks. The company is posting the steepest gains among casino operators with a market value of at least USD500 million this year – and it only just started turning a profit.
Among Philippine casinos, “City of Dreams Manila has the strongest Macau connection, so the expectation is at some point its gaming revenue will grow faster and become the biggest in the industry,” said Noel Reyes, who helps manage $1.2 billion as chief investment officer at Security Bank Corp. in Manila. Melco Crown Philippines “is getting revalued on prospects it will soon become profitable because of the renewal of ties between Beijing and Manila.”
Duterte, who’s attracted controversy over his anti-U.S. rhetoric and a bloody drug war, announced a pivot to China and Russia last October. He’s repeatedly touted the benefits of warmer ties with Asia’s largest economy.
The rhetoric appears to be paying off, with Chinese tourists to the Philippines up 25 percent in the first two months of 2017, accounting for about 14 percent of total visits, government data show. China overtook Japan as the Philippines’ third-biggest source of tourists last year.
Gross gaming revenue, mean- while, rose 20 percent in the first nine months of 2016, from the same period a year earlier, according to the latest data available from the Philippine Amusement & Gaming Corp. The Southeast Asian nation – which relies on remittances from workers overseas for about 10 percent of its economy – could ultimately surpass Singapore on gaming, Universal Entertainment Corp. Chairman Kazuo Okada said in December.
Melco Crown Philippines has trod a rocky road to casino-stock supremacy. The shares slumped 83 percent in 2015 as Beijing’s crackdown on graft and official excess sparked concern the nascent flow of Chinese gamblers could ebb. While the anti-corruption drive remains in place, that pullback lured investors like BDO Unibank Inc., which began buying Melco Crown Philippines stock last year.
“We were seeing signs of a recovery based on the inflow of tourists and growth in industry gaming revenue,” said Frederico Ocampo, BDO Unibank’s chief investment officer. “There’s more room for stock appreciation once investors realize that prospects have changed.”
The equity gains reflect the strength of the Philippine gaming market and the success of City of Dreams Manila, Melco Resorts Chairman Lawrence Ho said in an e-mailed response to questions from Bloomberg News. “Our successful investment in Manila reinforces our confidence in identifying and investing in new markets.”
Shares of Melco Crown Philippines rose 3.7 percent Friday, versus a 0.1 percent gain in the Philippine Stock Exchange Index.
The Philippines has jumped on phone betting amid the Macau ban, with punters able to place bets at City of Dreams Manila via phone while watching the game play out through a live video stream. Casino gambling by phone is also banned in Singapore.
Having a parent active in Macau has helped Melco Crown Philippines gain momentum, according to Richard Laneda, an analyst at COL Financial Group Inc. City of Dreams Manila’s hold rate for high rollers – the portion of a VIP’s buy-in held by a casino – is about 20 percent above the industry’s long-term average, Laneda said. But the link to Melco Resorts could also be a liability.
“City of Dreams, because it is highly exposed to the Chinese market, will be more sensitive to the state of politics between Manila and Beijing,” said Security Bank’s Reyes.
Looser visa requirements agreed to last year are expected to boost Chinese visitor arrivals to the Philippines in 2017, and Citigroup Inc. is predicting growth for all casino operators. At the same time, a revival in VIP gaming and a pivot toward catering to casual punters and tourists is underpinning a recovery in Macau.
That shouldn’t worry the Philippines, says Fernando, the supply manager playing baccarat at City of Dreams Manila.
“I haven’t been to Macau but the Chinese are coming here to Manila to play so the casinos here must be the same to what they have there,” he said, while cashing in his chips. “My friends who have been to Macau say the service and atmosphere here in Manila is friendlier.” Ian Sayson, Bloomberg
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