Melco dips on discounting of A-Max partnership

Melco, which develops and owns casinos and resorts in the Chinese coastal community of Macau, has partnered with A-Max for a "junket" offering for its Crown Macau property. A-Max runs a business that packages deals on travel fare and hotel rooms into "junkets," or paid trips that companies offer clients.

Lawrence Klatzkin of Jefferies & Co. was pleased with Crown Macau's quarterly performance and expects the A-Max partnership will continue to add to Melco's results.

"We believe at current levels the market is still not giving credit to Melco for the full value of A-Max, which has successfully been generating monthly rolling chip volume slightly above $40 billion Hong Kong dollars ($5.13 billion)," he wrote in a client note.

Rolling chip volume is VIP play.

The analyst also looks for Melco to capitalize on recent Macau regulatory changes. In April Macau's leader said the Chinese enclave would place a hold on new gambling licenses. Edmund Ho told Chinese lawmakers that no casino concessions or sub-concessions would be issued in the foreseeable future.

The government also will not approve any new applications from the territory's 28 casinos for additional gambling tables or slot machines, he said. The comments were seen as good news for companies that already have a foothold in the booming gambling enclave 40 miles (65 kilometers) west of Hong Kong.

Klatzkin maintained a "Buy" rating and $21 price target, implying growth of 54 percent over its Thursday closing price over the next 12 months.

Shares of Melco PBL Entertainment shed 51 cents, or 3.7 percent, to $13.11. Over the past year, the stock has traded between $8.20 and $19.09.