abriel Chan, who has covered the company since February 2007, said in a note to clients that he had slashed his earnings forecasts for 2011 because he now believed "mass market" gamblers would be spending 15 % less at the new City of Dreams casino.
He said he expected earnings per share to fall to just us$ 6 a share by December 2011 because the new casino was failing to attract enough small-time gamblers prepared to part with their cash. Chan had previously estimated that earnings per share at Melco Crown Entertainment would have been us$ 31.5 by December 2011. He changed his mind after the company released figures for its first month of trading last week.
Despite 41,000 people walking through City of Dreams every day since it opened in the first week of June, most of the visitors were just admiring the decor instead of sitting down at its tables for a game of baccarat, he said.
The us$ 2.1 billion City of Dreams is much bigger than the first casino opened by Melco Crown Entertainment, now called Altira. It has 520 gaming tables and 1350 poker machines.
Packer is relying on the success of the City of Dreams to vindicate his decision to invest billions of dollars of his own money and investors' funds in Macau after his purchase of a casino license for us$ 1.3 billion. Crown has a 37 % stake in Melco Crown.
The casino opened in the midst of both the worst global slump since World War II and as the Chinese Government tightens restrictions on the number of visits its citizens can make. The company said last week that its average daily "mass market drop" was about us$ 3.3 million, which is less than a third of that posted by rival Macau casino the Venetian, owned by US-listed giant Las Vegas Sands.
It is vital that Melco Crown boosts the amount gambled by its mass-market players because it has a profit margin of 26-30 % compared with just 6 to 8 % for the high rollers who play baccarat and bet up to us$ 150,000 on each hand.
City of Dreams management said they were aiming for about 40 % of revenues to come from the mass market. In June, only about 28 % of revenues was coming from these mass market players. Chan suggested Melco Crown management might have to offer gifts, freebies or rebates to gamblers to entice them to City of Dreams, which could trigger a price war with rivals over mass-market gamblers.