Credit Suisse cuts Crown Resorts rating on VIP concerns

Monday 15th of December 2014

Credit Suisse has downgraded its investment rating on Crown Resorts’ stock amid concern about the impact of falling VIP revenue on its development projects.

The rating was reduced to underperform, with the price target cut to $11.40 from $15.20.

Analyst Larry Gandler says the ongoing slump in VIP activity has raised concerns about the sector in Australia.

Crown last week said it was adding a new luxury hotel in Crown Melbourne to help add capacity at its integrated resort in the city. It’s also planning a resort in Las Vegas, a six-star VIP-only resort in Sydney and is bidding for a license as part of a consortium to develop a casino in downtown Brisbane. The company also has plans for an investment in Sri Lanka.

"About $7 of our Crown valuation is exposed to global VIP gaming and Macau," he said in a note to clients.

"There is, of course, Macau and the Australian VIP revenue streams, but there is also the planned Vegas casino and the planned Sydney casino. Both of these ventures are expected to be very dependent upon VIP patronage."

Cash flow from the domestic casinos, after maintenance capital expenditure, plus Melco dividends and consolidation of Melco's ungeared balance sheet give Crown access to $2.7 billion in on-balance funding capacity out to 2020, he says.

"This financial resource must fund the Sydney construction, Melbourne and Perth hotel towers, and any potential equity that might be called for the Brisbane or Vegas projects," he said.