James Packer’s Macau investment starts to pay off


James Packer’s Crown Resorts will earn a return on its investment in Macau for the first time, after its joint venture casino operator in the region, Melco Crown, said it would begin to pay a regular dividend.

After its fourth quarter results for 2013, in which net income doubled to $US223.2 million, Melco said it had recommended the board approve the payment of a maiden dividend and a subsequent ongoing policy.

Crown owns a 33.6 per cent stake in Melco, alongside Lawrence Ho, the son of casino tsar Stanley Ho. Crown – then PBL – invested about $600 million in Melco in 2004. Although the market value of its stake is now worth about $6.8 billion and represents about half of Crown’s current share price, the company is yet to enjoy a tangible return.

Melco management recommended the payment of a $US191.2 million ($212.73 million) special dividend, worth US34¢ per American depository receipt or US11.5¢ a share, as well as quarterly dividends that equate to 30 per cent of annual net profit. The company also left open the option of special dividends where cash flow allowed.

“As the company has generated significant earnings and cash flow, in order to recognise the support of its shareholders, management has made a recommendation to our board on the payment of a special dividend to its shareholders and the establishment of a new dividend policy,” Melco said in a statement overnight.

Goldman Sachs analyst Adam Alexander said he expected future special dividends as well as the stated policy.

“Given its strong cashflow and that both MSC [Macau Studio City] and COD [City of Dreams] Manila projects are fully funded, we see scope for the company to distribute more cash via special [dividends] from time to time, unless it identifies sizeable overseas opportunities (for example Japan, Korea),” he said in a note to clients.

In a statement to the market on Friday, Crown said its board would assess the impact of the Melco dividend and review its own dividend policy. “Any such review will be completed prior to Crown announcing its full year results in August 2014,” the company said.

In a January report, Citi analyst Michael Goltsman, in determining a discounted cash flow valuation for Crown, said he assumed Melco would implement a medium-term payout ratio of 30 per cent and a long-term payout ratio of 50 per cent.

Melco’s net revenue gained 27 per cent to $US1.39 billion. Macau is the only place in China where its citizens can legally gamble.

Source: BRW

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