Melco Crown Alert: BNP Paribas Just Downgraded Shares On Multiple Factors

In a report published Wednesday, analysts at BNP Paribas downgraded Melco Crown Entertainment Ltd (ADR) (NASDAQ: MPEL) from Hold to Reduce. The target price has also been revised down from $21.66 to $17.09.

Following the smoking ban, Melco lost mass market share in 1Q15, as competitors moved premium tables into VIP areas. The company's is likely to be further adversely impacted with the upcoming VIP smoking ban in 2016. The analysts also expect other gaming operators to adapt to the setback from the current smoking ban.

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According to BNP Paribas, "Given MPEL's 60% stake in Studio City (not listed), we think MPEL management will be reluctant to move gaming tables from existing properties to Studio City. This raises concern over Studio City and its loans' debt covenants if the gaming table allocation for Studio City is unfavourable."

With the launch of the VIP business in Melco's City of Dreams Manila being delayed to June 2015, at the same time as the launch of Galaxy Macau Phase 2, the analysts believe that both businesses will be vying for the same set of VIP clients.