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What Are the Risks Facing Melco Crown?

Monday - 12/10/2012, 12:00am  ET

Melco Crown has been one of the best-performing stocks in gaming, but as we look ahead, there are still risk associated with the company. In our new premium report on the Melco Crown I've covered these risks, the company's opportunity, as well as the three things you have to watch going forward. Here is an excerpt from the report. 

Risks
Melco Crown's enormous opportunity doesn't mean there aren't risks that investors need to watch out for. The expansion of gaming in the Philippines and other parts of Asia poses both opportunity and risk for Melco Crown. Macau's virtual monopoly on gaming in Asia allowed for a limited supply with tremendous demand, but that supply is beginning to grow. Singapore now has two resorts, the Philippines is adding casinos, and countries like South Korea and Japan are considering megaresorts as well. Expansion will suck some of the life out of Macau's gaming market.

The Asian economy, particularly China, could pose a major threat to gaming in Macau. China's growth is slowing and some economists worry that we're headed for a hard landing after the government's string of stimulus spending runs out. As long as China continues to grow, Macau will be hot, but if/when China heads into a recession, it will be a huge hit to Macau.

Operating in highly regulated markets has its upside, but it also poses risks for investors. The government restricts the number of table games in Macau, which poses challenges for companies looking to expand, and sets strict rules for construction of new resorts. Melco Crown risks burning its investment in Studio City if regulators don't approve table games that would make the project financially viable. Just ask Las Vegas Sands about this risk: It had to give up Parcels 7 and 8 on Cotai after spending $162 million to prep the site for construction.

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This article was originally published as What Are the Risks Facing Melco Crown?on Fool.com

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