Crown (CWN) Update

Submitted by Jim Thesiger on 30 May, 2008 - 11:06

Crown (CWN) has a target price of $15.10 and a reiterated Outperform recommendation from Australian Stockmarket analyst Macquarie Research Equities.

Crown (CWN) : The Gaming Gem in Macau!

Macquarie Research (MRE) have reiterated their outperform recommendation for Crown Limited shares with a 12 month price target of $15.10. The stock closed at a 30% discount to the current valuation at $10.50 yesterday. Crown has a 41.4% interest in Melco PBL Entertainment (Macau) Limited which opened the doors of Crown Macau in May 2007 where the company is dominating the VIP sector.

Event

Yesterday, the Chinese Government announced visa restrictions for travel from the Guangdong Province to Macau which will limit the number of visa applications to one per month. The new restrictions will take effect on June 1 which could potentially hamper visitation rates.

Impact

The decision by the Chinese Government is likely to have little short-term impact on Crown as Crown’s focus is the VIP segment. Crown’s three-year agreement with junket operator, AMAX, will therefore continue to underpin sustained growth in the VIP segment. Other gamers in Macau are trying to replicate the AMAX model with little success with Crown Limited continuing its dominance of market share.

The Guangdong Province is the only province on which the restrictions have been imposed. The decision will impact the day-trip market which is the majority of the mass market as day-trippers predominantly originate from the Guangdong Province.

Government intervention limits supply of other casino operators resulting in further upside for earnings with Crown Limited potentially deriving ~80% of its earnings from Asia by 2010.

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