We have been skeptics of the ability of City of Dreams to pull itself up to the same weight category as Wynn and the Venetian, as anyone who has read this newsletter will know. We have noted the volatility of revenues, we have criticized the design of the building, and we have questioned the strength and experience of the management team aside from its VIP marketing kingpin. But we’re starting to see reasons to cut Lawrence Ho a break and say that we are more impressed than we thought we would be by now.

To be sure, we still think Melco-Crown faces the tougher battle of the two existing landlords in Cotai as Galaxy Macau prepares to open next year. But on the evidence of what we see, MPEL is looking increasingly undervalued relative to its peers, to the point of being ridiculously so.

We do regular walks of the floors, and we have to admit that City of Dreams, for want of a better yardstick, has more of a buzz to it these days than it did just a few months ago. We are not yet ready to admit that it’s because of the opening of the US$250m THODW show (could a worse acronym have been dreamed up?) as we still can’t see how the addition of 10,000 people a week into the property can really move the revenue needle that much, especially as a large proportion are existing players being comped, and the biggest percentage are Hongkongers, a market that will soon become saturated with five years left on the contract.

However, we do get the sense that an important reason why COD is getting buzzier, and therefore will be better able to grow its mass revenues (everyone prefers to dine in a full restaurant, after all), is that it’s almost fully open. There are fewer dead spaces in the house, and evidence of life is more visible.

Moreover, we think COD is becoming, quite simply, a nicer and more enjoyable place to visit. Service levels have improved. We particularly like the fact that there are more pretty girls standing around, available to help people figure out where they are and where they should be (yes sir, there is a casino here). Table management seems to have gotten better, which may be explained by the arrival of a certain smart chappie who has asked us not to use his name here because he says we don’t know anything about anything and he doesn’t want to be tainted by association.

VIP continues to power ahead under Kelvin Tan, but where we see the biggest potential developing is under the other marketing guy at COD, who also doesn’t want to be mentioned here, in the mass segment. We understand that premium-mass is doing pretty well, even though no one in management will actually tell us so, and we agree wholeheartedly with friends of friends who work there that it is the segment of the market with the biggest potential to grow out of China. So if THODW can eventually fill its 2,000 seats with those kind of players every night, that will be quite an achievement.

Mostly, we have to say that the boss deserves credit, no pun intended. This is Lawrence Ho’s baby, and thanks to a combination of perseverance and courage he has taken Melco-Crown from Ebitda of around $75m in 2Q to around US$115m in 3Q to around US$??m (ask the licensed securities analysts) in 4Q on normalized win-hold. He has had a steep learning curve to climb, but he seems to be getting better, much better, with each quarter that passes.

But finally, we have to ask ourselves, given the rising tide of money flowing in from China, how could anyone in this market be trading at a 50% discount to the front-runners, especially when they are catching up so quickly in the Ebitda rankings? Stay tuned to see how the odds improve.

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