Company

Australasia Australia Tourism

5 March 2012

Crown
Reuters: CWN.AX Bloomberg: CWN AU Exchange: ASX Ticker: CWN

Company Update Buy

Price at 5 Mar 2012 Price target - 12mth 52 week range (AUD) ALL ORDINARIES 8.39 11.10 9.15 - 7.54 4,364

Global Markets Research

Echo Entertainment investment strategy

Mark Wilson, CFA
Research Analyst (+61) 2 8258-1564 mark.wilson@db.com

Price/price relative

Daniel Pi

Anthony Hanna
Research Associate (+61) 2 8258-3463 anthony.hanna@db.com

Research Analyst (+61) 2 8258-1679 daniel.pi@db.com

Buy rating and A$11.10/share valuation maintained Notwithstanding the Echo Entertainment takeover speculation, we believe the Crown share price can continue to bridge the valuation gap (DB $11.10/share) as the market appreciates that a full takeover bid is not imminent and there are opportunities in combining the operations of Crown and at least part of Echo Entertainment. We believe the strategy will be to increase the shareholding to 20%, creep until Crown can exert some influence, meanwhile continuing to pursue the Barangaroo casino/hotel project. Process to be long dated We believe this process will be long dated as regulatory approvals are required to move beyond 10% of Echo Entertainment, Echo Entertainment is not willing to grant Crown a Board seat unless it has some degree of control, and we struggle to see how a full takeover bid is earnings or value accretive in the near term as we estimate a full takeover bid would have to be 50% scrip-based. However, we believe the synergy estimate could be increased from $70m to $110m and the funding burden could be eased by the potential sale of the Queensland Casinos for $1.5-1.6bn. Barangaroo hotel/casino project While the $750m-$1.0bn Barangaroo hotel/casino remains a concept at this stage, requiring regulatory and planning approvals, we believe it could determine the timing of any further developments in relation to Crowns interest in Echo Entertainment. This will ultimately depend on the support provided by Echo Entertainment, the government, and the relevant planning authorities. Share price target A$11.10, risks Our price target of A$11.10 is based on the mid-point of our SOTP valuation range of A$10.79-11.42/share. Key downside risks include capital deployment (and further equity contributions into associates), regulatory risks, softer household disposable income and competition from Singapore and Macau.
Forecasts and ratios
Year End Jun 30 Sales (AUDm) EBITDA (AUDm) Net Profit (AUDm) EPS (AUD) EPS Growth (%) PER (x) PE Relative (x) EV/EBITDA (x) DPS (net) (AUD) Yield (net) (%) Franking (%)
Source: Deutsche Bank estimates, company data
1 2

9.2 8.8 8.4 8.0 7.6 7.2 6.8 6.4 3/10

6/10

9/10 12/10 3/11

6/11

9/11 12/11

Crown ALL ORDINARIES (Rebased)

Performance (%) Absolute ALL ORDINARIES

1m 0.7 1.0

3m -0.8 -0.4

12m -2.4 -12.0

Stock data
Market cap (AUDm) Market cap (USDm) Shares outstanding (m) Daily volume (USDm) Free float 6,237 6,708 743.4 13.32 0.00

Key indicators (FY1)

ROE (%) ROA (%) Net debt/equity (%) Book value/share (AUD) Price/book (x) Net interest cover (x) EBIT margin (%) 10.3 9.6 61.7 3.72 2.3 4.8 17.4

2010A 2,292 657 288 0.38 -2.8 20.9 10.1 0.37 4.7 60

2011A 2,414 661 337 0.44 16.7 18.9 10.8 0.37 4.4 60

2012E 2,761 703 416 0.56 25.9 15.0 1.34 10.7 0.37 4.4 50

2013E 2,943 780 457 0.63 12.3 13.4 1.36 9.9 0.37 4.4 50

2014E 3,144 844 543 0.74 18.7 11.3 1.26 8.9 0.50 6.0 50

Pre-exceptionals/extraordinaries Multiples and yields calculations use average historical prices for past years and spot prices for current and future years, except P/B which uses the year end close

Deutsche Bank AG/Sydney All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 146/04/2011.

5 March 2012

Tourism Crown
Y/E 30 June SUMMARY
Normalised EPS (A$) P/E ratio normalised (x) Normalised EPS growth (%) EPS FD (A$) P/E ratio FD (x) Operating CFPS (A$) P/CFPS (x) DPS (A$) Dividend yield (%) Price/BV (x) Enterprise Value (A$m) EV/EBITDA (x) EV/EBIT (x)

Model updated: 24 February 2012

07/08
0.537 21.0 11.6 0.501 22.5 0.790 14.2 0.540 4.8 1.81 5,660 9.6 12.4 333 166 -42 456 2,026 589 -133 456 56 116 -25 370 0 370 456 569 -15 -196 373 -493 0 -339 589 0 250 131 458 2,363 1,855 12 844 7,532 2,379 872 3,251 4,281 0 4,281 -137 16 7.6 29.1 22.5 91.5 8.7 9.0 7.7 22.8 9.7 1.5 0.4 -8.2

08/09
0.391 17.4 -27.2 0.295 23.0 0.551 12.3 0.370 5.4 1.50 6,323 10.2 13.4 337 176 -42 472 2,164 620 -148 472 -28 94 -69 281 0 281 472 464 -8 -389 75 -511 376 -331 -1,930 0 -1,885 -2,321 391 516 2,135 12 830 5,291 1,057 798 1,855 3,436 0 3,436 -170 542 6.8 28.6 21.8 118.0 8.0 9.1 8.1 21.2 18.0 2.6 15.8 16.9

09/10
0.380 20.9 -2.8 0.316 25.1 0.506 15.7 0.370 4.7 1.76 6,982 10.6 14.1 349 179 -34 494 2,292 657 -163 494 -73 84 -48 288 0 288 494 432 -29 -356 76 71 3 -278 -200 0 -476 -329 129 196 2,321 0 827 4,969 848 702 1,550 3,419 0 3,419 -162 652 5.9 28.7 21.6 96.5 10.0 9.8 9.2 20.0 15.5 2.2 19.1 6.8

10/11
0.444 18.9 16.7 0.466 18.0 0.649 12.9 0.370 4.4 1.95 7,151 10.8 15.4 351 158 -43 466 2,414 661 -196 466 -67 79 17 337 0 337 466 475 -32 -352 124 -144 7 -279 304 0 32 12 292 184 2,515 0 878 5,024 1,070 694 1,764 3,260 0 3,260 -128 886 5.3 27.4 19.3 82.7 9.7 9.6 8.5 19.8 14.6 1.8 27.2 7.0

11/12E
0.559 15.0 25.9 0.705 11.9 0.963 8.7 0.370 4.4 2.25 7,517 10.7 15.7 347 173 14 -54 479 2,761 703 -223 479 -99 73 108 416 0 416 479 608 19 -543 65 -336 -240 -278 789 0 271 0 789 184 2,834 0 878 5,368 1,858 798 2,656 2,713 0 2,713 -147 1,674 14.4 25.5 17.4 66.9 9.6 10.3 8.2 19.2 19.7 2.4 61.7 4.8

12/13E
0.628 13.4 12.3 0.791 10.6 1.017 8.2 0.370 4.4 2.20 7,697 9.9 14.2 386 185 15 -44 542 2,943 780 -239 542 -117 86 119 457 0 457.3 542 622 10 -173 449 0 0 -272 -177 0 -449 0 -177 184 2,769 0 878 5,316 1,681 850 2,532 2,784 0 2,784 -157 1,498 6.6 26.5 18.4 59.6 10.5 12.3 10.0 20.3 5.9 0.7 53.8 4.6

13/14E
0.745 11.3 18.7 0.960 8.7 1.143 7.3 0.500 6.0 2.13 7,479 8.9 12.4 429 205 16 -45 605 3,144 844 -239 605 -115 104 156 543 0 542.6 605 676 11 -96 580 0 0 -320 -259 0 -580 0 -259 184 2,641 0 878 5,201 1,422 908 2,330 2,871 0 2,871 -167 1,238 6.8 26.9 19.3 59.1 11.9 13.7 11.6 21.2 3.1 0.4 43.1 5.2

14/15E
0.813 10.3 9.1 1.035 8.1 1.196 7.0 0.546 6.5 2.08 7,225 8.1 11.1 463 216 17 -47 650 3,289 888 -239 650 -96 123 162 592 0 592.1 650 709 8 -80 629 0 0 -381 -248 0 -629 0 -248 184 2,497 0 878 5,067 1,174 950 2,123 2,944 0 2,944 -175 990 4.6 27.0 19.8 64.3 13.1 14.8 12.9 22.2 2.4 0.3 33.6 6.7

15/16E
0.865 9.7 6.3 1.094 7.7 1.235 6.8 0.580 6.9 2.03 6,982 7.6 10.3 480 228 18 -48 678 3,403 916 -239 678 -78 137 167 630 0 630 678 733 6 -84 649 0 0 -410 -238 0 -649 0 -238 184 2,356 0 878 4,935 935 983 1,918 3,017 0 3,017 -181 752 3.5 26.9 19.9 65.1 14.1 15.5 13.9 22.8 2.5 0.4 24.9 8.7

Equity Research Asia Pacific Australia Tourism & Leisure

Crown Ltd
Reuters: CWN.AX Bloomberg: CWN AU

Buy
Price as at 05-Mar Target price Company website http://www.crownlimited.com
Company description Crown is one of Australias largest entertainment groups. The groups core businesses and investments are in the gaming and entertainment sector. Crown wholly owns and operates two of Australias leading gaming and entertainment complexes, Crown Entertainment Complex in Melbourne and Burswood Entertainment Complex in Perth. In addition, Crown owns a portfolio of gaming investments that have been accumulated to complement Crown's existing core businesses and to provide for future growth.

A$8.39 A$11.10

DIVISIONAL EBIT (A$m)

Crown Melbourne Burswood Aspinalls Club Other Total PROFIT & LOSS (A$m) Sales revenue EBITDA (incl significant items) Depreciation/amortisation EBIT (incl significant items) Net interest income (expense) Income tax expense Associates/affiliates Minorities/preference dividends Reported profit Significant items Net profit (excl significant items) EBIT (excl significant items) CASH FLOW (A$m) Cash flow from operations Movement in net working capital Capex Free cash flow Other investing activities Equity raised/(bought back) Dividends paid Net inc/(dec) in borrowings Other financing cash flows Total cash flows from financing Net cash flow Movement in net debt/(cash) BALANCE SHEET (A$m) Cash and other liquid assets Tangible fixed assets Goodwill Other intangible assets Associates/investments Other assets Total assets Interest bearing debt Other liabilities Total liabilities Shareholders' equity Minorities/other Total shareholders' equity Net working capital Net debt/(cash) RATIO ANALYSIS Sales growth - pcp (%) EBITDA/sales (%) EBIT/sales (%) Payout ratio (%) ROA (%) ROE (%) Operating Return on Capital (%) Tax rate (%) Capex/sales (%) Capex/depreciation (x) Net debt/equity (%) Net interest cover (x)

Research Team

Mark Wilson
+61 2 8258 1564 mark.wilson@db.com daniel.pi@db.com

Daniel Pi
+61 2 8258 1679

Absolute Price Return (%)

-3% -3% 1m 3m -2.4% 12m -2% -2% -1% -1% 0% 1% 1% 0.7% -0.8%

52-week High/Low: Market Cap (m)

A$9.15 - 7.54 A$ 6,111 US$ 6,502

12mth Fwd P/E Relative (x)

1.80 1.70 1.60

35 30 25 20

Trends

18 16 14 12 10 8 6 4 2

Return Ratios (%)

1800 1600 1400 1200 1000 800 600 400 200 0

Net Debt (Cash) / Equity (%)

70 60 50 40 30 20 10 0

1.50 15 1.40 10 1.30 5 1.20 1.10 3/07 0 09 3/08 3/09 3/10 3/11 3/12 10 11 12E 13E 14E 15E 16E

0 09 10 11 12E 13E 14E 15E 16E

ROA (%) ROE (%) op ROC (%)

09

10

11

12E 13E 14E 15E 16E

EBITDA/sales (%) EBIT/sales (%)

Net debt / (cash) (AUD m) Net debt/equity (%)

Page 2

Deutsche Bank AG/Sydney

5 March 2012

Tourism Crown

Key issues
Investment overview
We maintain our Buy rating with the stock trading at a 24% discount to our valuation of A$11.10/share, which represents the mid-point of our sum-of-the-parts valuation range. The implied value of the Australian Casinos is 6.8x FY13 EBITDA and our valuation of the Australian Casinos is A$8.00-8.50/share. Notwithstanding the Echo Entertainment takeover speculation, we believe the Crown share price can continue to bridge this valuation gap as the market appreciates that a full takeover bid is not imminent and there are opportunities in combining the operations of Crown and at least part of Echo Entertainment, if not all. We estimate the synergies to be $70-110m, encompassing VIP revenue synergies, the elimination of corporate overheads, consolidation of VIP and domestic marketing, procurement, IT and business services. We believe this process will be long dated as regulatory approvals are required to move beyond 10% of Echo Entertainment, Echo Entertainment is not willing to grant Crown a Board seat unless it has some degree of control, and we struggle to see how a full takeover bid is earnings or value accretive in the near term as we estimate a full takeover bid would have to be 50% scrip-based. The Executive Chairman, James Packer, has also stated he does not wish to be diluted from 46%. We believe the regulatory approvals could take ~3 months as the regulators undertake thorough investigations into Crown and its officers to ensure financial and personal stability. Caretaker provisions are in place in Queensland with the pending election. While we estimate a full takeover would be 6% EPS dilutive in FY14, assuming a 20% takeover premium, 50/50 debt/equity funding, and $70m in synergies, we believe the synergy estimate could be increased to $110m, and the funding burden could be eased by the potential sale of the Queensland Casinos, which we value at $1.5-1.6bn. We believe potential interested parties may include SkyCity Entertainment (Hold, NZ$3.85) and Genting Singapore (Hold, S$1.61) due to their general strategy, and/or private equity. We believe the companys A$2.3bn investment in Melco Crown is integral to the companys strategy in relation to attracting the high end Asian VIP customer and, thus, we do not believe the company is a willing seller of this interest. While the $750m-$1.0bn Barangaroo hotel/casino remains a concept at this stage, requiring regulatory and planning approvals, we believe it could determine the timing of any further developments in relation to Crowns interest in Echo Entertainment. This will ultimately depend on the support provided by Echo Entertainment, the government, and the relevant planning authorities. A second casino before 2019 could only proceed under the existing casino licence, currently held by Echo Entertainment. This is exclusive to 2019 and it is a single casino licence. Thus, the Barangaroo casino could only proceed with the co-operation of Echo Entertainment and it would require legislative change for a second casino. If Echo Entertainment did not co-operate, then Crown would either have to acquire the Sydney casino licence or wait until 2019 and hope that the NSW Government would grant a second casino licence.

Deutsche Bank AG/Sydney

Page 3

5 March 2012

Tourism Crown

Planning approvals would also be required as Crown is currently proposing a development in Barangaroo Central, which has a height restriction of 35m. There has been some opposition to this with calls for it to be located in Barangaroo South. Thus, we believe the strategy will be to increase the shareholding to 20%, creep until Crown can exert some influence, meanwhile continuing to pursue the Barangaroo casino/hotel project.

Valuation
Our sum-of-the-parts valuation range is A$10.79-11.42/share with the lower end of the valuation range utilizing Deutsche Banks valuation of MPEL (US$12.20/ADS) and the upper end the market value of Melco Crown (US$13.39/ADS). We value the domestic casino assets at 9.0-9.5x FY11E EBITDA and allow for an additional A$75m earnings uplift from the ongoing main gaming floor refurbishments and new hotel. These multiples are supported by market structure and position, and cashflow-based valuation metrics, and we have included the impact of the opening of the Singapore casinos in 2010. We value the companys 24.5% interest in Cannery Casino Resorts at A$65-150m. Figure 1: Crown SOTP valuation
FY12 EBITDA Australian Gaming Crown Melbourne Burswood Total value Australian Gaming 516 223 739 25 50 75 541 273 814 9.0 9.0 9.5 9.5 4,873 2,456 7,329 5,144 2,592 7,737 $6.43 $3.24 $9.66 $6.78 $3.42 $10.20 Adjust. Adj FY11 EBITDA multiple EBITDA Low High Valuation Low High Valuation per share Low High

Investments MPEL (33.65%) Fontainebleau (19.6%) Gateway Casinos (50%) Aspinall's Club Aspers Group (50%) Betfair Australia (50%) Station Casinos Group (4.9%) Caesar's Entertainment (2.5%) Cannery (24.5%) Total value Investments 15 0 15 6.0 7.0 2,130 0 0 92 0 0 0 0 65 2,287 2,114 0 0 108 21 20 0 0 150 2,413 $2.81 $0.00 $0.00 $0.12 $0.00 $0.00 $0.00 $0.00 $0.09 $3.02 $2.79 $0.00 $0.00 $0.14 $0.03 $0.03 $0.00 $0.00 $0.20 $3.18

Corporate costs Total value Crown Ltd

-55

7.0

8.0

-382 9,235

-436 9,713

-$0.50 $12.18

-$0.57 $12.81

Net (debt)/cash

-1,056

-1,056

-$1.39

-$1.39

Equity value Number of shares Value per share

Source: Deutsche Bank

8,179 758.4 $10.79

8,657 758.4 $11.42

$10.79

$11.42

Page 4

Deutsche Bank AG/Sydney

5 March 2012

Tourism Crown

The implied value of the Australian Casinos is 6.8x FY13E EBITDA Figure 2: Implied value Australian Casinos
FY10 Share price ($) Number of shares Equity value 7.98 758 6,052 FY11 8.39 758 6,363 FY12E 8.39 743 6,237 FY13E 8.39 728 6,111 FY14E 8.39 728 6,111

Net debt/(cash) Investments (BV) MPEL (MV) Enterprise value

652 6 972 5,726

886 65 2,320 4,863

1,674 65 2,320 5,526

1,498 65 2,320 5,224

1,238 65 2,320 4,964

EBITDA (adj) Multiple

693 8.3

647 7.5

687 8.0

764 6.8

827 6.0

EBIT Multiple
Source: Deutsche Bank

530 10.8

452 10.8

465 11.9

527 9.9

590 8.4

Figure 3: Peer comparison

Company Ticker DB Rating Curr. Price Price Target 3.80 11.10 3.60 Mkt. Cap (mm) 2,952 6,111 2,221 P/E FY12E 24.7x 15.0x 15.4x 18.4x FY13E 23.9x 13.4x 14.9x 17.4x EV/EBITDA FY12E 10.7x 8.0x 8.7x 9.2x FY13E 9.2x 6.8x 8.2x 8.1x

Echo Entertainment Crown SkyCity Entertainment Average Casinos

EGP.AX CWN.AX SKC.NZ

Hold Buy Hold

AUD AUD NZD

4.29 8.39 3.85

Source: Deutsche Bank, Bloomberg. Prices as at 5 Mar.

Investment in Echo Entertainment

Crown has a 10% shareholding in Echo Entertainment by way of a cash settled equity derivative. This can be settled at Crowns election and Crown would pay $256.6m for 68.8m shares, which is equivalent to $3.73/share. Crown also disclosed that it is seeking the relaxation of the 10% shareholder caps in NSW and Queensland in order to have the ability to increase its voting power above 10%.

Regulatory approvals
In order to increase its shareholding above 10%, consents must be obtained by the NSW Independent Liquor and Gaming Authority (ILGA) and, in Queensland, it is the Attorney General with input from the regulator. While we believe these consents will eventually be granted, we believe they will take time, particularly with a pending election in Queensland. The caretaker provisions prevent the relevant Minister from considering any findings before the election on March 24. Both regulators will undertake thorough investigations into Crown and its officers in the same manner that applies to the application of a casino licence. The investigations will examine all aspects of the financial and personal suitability of Crown and key officers to be associated with the licence.

Deutsche Bank AG/Sydney

Page 5

5 March 2012

Tourism Crown

Board representation
Crowns request for a Board seat at Echo was rejected and the Chairman of Echo Entertainment has stated that a Board seat will not be granted until a position of control is attained. It is thus possible that Crown will have to increase its shareholding above 30% in order for this to occur. To counter this, an extraordinary general meeting could be called and Crown would be permitted to vote its shareholding.

Merger analysis
As highlighted in our note of February 24, we do not believe an acquisition of Echo Entertainment would be earnings nor value accretive at current pricing levels and based on FY14 earnings. Assuming a 20% takeover premium, we estimate an acquisition cost of A$4.24bn. In order to retain an investment grade credit rating (debt/EBITDA <2.5x), we estimate Crown would have to issue scrip to the value of A$2.1bn. Assuming $70m in synergies (cost savings, corporate costs and the consolidation of VIP marketing), we estimate this would be EPS dilutive by 6% in FY14. Crown would require an earnings uplift of A$130m in order for this to be EPS neutral or for Crown to pay the equivalent of $3.70/share. Figure 4: Crown-Echo acquisition analysis (A$m)
2014 Sales Crown 3,144 Echo 2,148 Adjustment Total 5,292

EBITDA

844

491

70

1,405

D&A

239

169

407

EBIT

606

322

998

Net interest expense

-115

-93

-159

-275

Pre-tax profit

490

229

723

Tax expense

-104

-69

-181

Associates

156

156

NPAT

543

160

699

Number of shares

728

688

265

994

EPS

74.5

23.3

70.3 -6%

Debt Debt/EBITDA
Source: Deutsche Bank

1,238 1.5

2,121

3,360 2.4

Page 6

Deutsche Bank AG/Sydney

5 March 2012

Tourism Crown

Synergies
Our base case analysis assumes synergies of A$70m, encompassing cost savings, corporate costs, and the consolidation of VIP marketing. Echo Entertainment has already identified $40m in cost savings from its 1H12 result ($10m in over-staffing costs and $30m in streamlining the organization), and we estimate the elimination of corporate costs would realize $20m and the consolidation of the VIP marketing offices $10m. This is highlighted in the table below: Figure 5: Crown-Echo synergy analysis (A$m)
Echo - pre-opening costs - corporate efficiencies Sub-total 10 30 40

Merger Corporate costs VIP office consolidation Sub-total 20 10 30

Total
Source: Deutsche Bank

70

We believe this estimate could be increased further should we take into account potential revenue synergies (increased VIP turnover), procurement (equipment suppliers, food & beverage, service contracts), IT, business services and domestic marketing. This could increase potential synergies by an additional $40m.

Funding
We believe a full takeover offer would have to be 50% scrip based in order for the company to retain its leverage ratio at or below 2.5x in order to retain its investment grade credit rating. It is interesting to note that the Crown Chairman, James Packer, has stated that he does not wish his 46% shareholding in Crown to be diluted. He also holds an additional 2% by way of a cash settled equity derivative. Crowns balance sheet remains strong. We estimate net debt at year end will be A$1.67bn with leverage of 2.6x. As at 31 December 2011, the company had committed undrawn facilities of $670.5m and no major funding requirements until June 2013.

Deutsche Bank AG/Sydney

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Tourism Crown

Queensland Casinos
In order to ease the funding burden, Crown could look to on-sell the Queensland Casinos, which we value at $1.5-1.6bn. As highlighted previously, Crown might be interested in the Gold Coast property given its potential to be an integrated resort and to target the Asian VIP customer, however, we do not believe the company would be interested in the Treasury nor Townsville properties. We value the Treasury and Townsville properties at ~A$750-800m. What also must be considered is whether it is feasible to split the south east Queensland properties. We believe there would be many interested parties in the Queensland assets including SkyCity Entertainment and private equity. While SkyCity last week did not rule out such interest, it did state that it was focussing on the NZ Convention Centre (NZ$350m) and the potential redevelopment of Adelaide Casino (A$250m). Genting Singapore could also be interested and it recently raised S$1.8bn in a hybrid issue for general corporate purposes and expansion of the business. Figure 6: Echo Entertainment SOTP valuation
EBITDA Multiple FY12E EBITDA Star City Casino Queensland Casinos 231 148 Adjust. Adj EBITDA 65 20 296 168 Low 9.0 9.0 High 9.5 9.5 Valuation Low 2,666 1,508 High 2,814 1,592

Enterprise Valuation

4,174

4,406

Net Debt

1,685

1,685

Equity Valuation

2,489

2,721

Number of Ordinary Shares

688

688

Value per Share

Source: Deutsche Bank

$3.62

$3.95

Melco Crown
Another option to ease the funding burden would be to sell the companys investment in Melco Crown, which has a current market value of A$2.3bn, however, we believe the companys investment in Macau is integral to the companys Asian VIP strategy. Thus, we do not believe Crown is a willing seller at current levels. Figure 7: Value of Crowns investment in Melco Crown
Share price (US$) Number of ADSs Mkt cap (US$m) Crown (33.65%) USDAUD A$
Source: Deutsche Bank

13.39 551 7,378 2,483 1.07 2,320

Page 8

Deutsche Bank AG/Sydney

5 March 2012

Tourism Crown

Barangaroo
Crown has proposed a hotel and casino development at Barangaroo, which is a $6bn development in Sydney. While the Barangaroo hotel/casino is just a concept at this stage, requiring regulatory and planning approvals, we believe it could determine the timing of any further developments in relation to its interest in Echo Entertainment. This will ultimately depend on the support provided by Echo Entertainment, the government, and the relevant planning authorities. Crown has proposed to build a $750m-$1.0bn hotel, casino and entertainment complex in Barangaroo Central. The hotel would have ~350 rooms with 2-3 levels of gaming, including ~100 tables. There would be VIP gaming salons with ~40 tables and a high end gaming area resembling the refurbished Mahogany Room at Crown Melbourne. The company has stated that the hotel alone would not justify this level of investment. A second casino before 2019 could only proceed under the existing casino licence, currently held by Echo Entertainment. This is exclusive to 2019 and it is a single casino licence. Thus, the Barangaroo casino could only proceed with the co-operation of Echo Entertainment and it would require legislative change for a second casino. It remains to be seen whether this would be supported in the NSW Upper House. Co-operation could take the form of a JV, payment of a management fee to Crown as the operator of the hotel/casino, or the payment of a management fee to Echo Entertainment. The developer of the project could also be involved. If Echo Entertainment did not co-operate, then Crown would either have to acquire the Sydney casino licence or wait until 2019 and hope that the NSW Government would grant a second casino licence. Total costs would include land costs and the cost of a second casino licence. Planning approvals would also be required as Crown is currently proposing a development in Barangaroo Central, which has a height restriction of 35m. There has been some opposition to this with calls for it to be located in Barangaroo South.

Deutsche Bank AG/Sydney

Page 9

5 March 2012

Tourism Crown

Figure 8: Crown proposal

Source: SMH

Figure 9: Barangaroo site

Source: The AFR Magazine

Page 10

Deutsche Bank AG/Sydney

5 March 2012

Tourism Crown

Gaming taxes
We believe Crown could also take the opportunity to push for lower gaming taxes, given the disparities, not only between Sydney and Melbourne, but also Singapore.

Risks
Key downside risks include: Capital deployment; Changes to household disposable income; Rising unemployment; Changes to gaming taxes/levies and/or harm minimisation measures; Competition from Singapore and Macau; Completion of construction projects within schedule and budget; Further equity contributions into associates.

Deutsche Bank AG/Sydney

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5 March 2012

Tourism Crown

Appendix 1
Important Disclosures Additional information available upon request
Disclosure checklist Company Crown Echo Entertainment Ticker CWN.AX EGP.AX Recent price* 8.39 (AUD) 5 Mar 12 4.29 (AUD) 5 Mar 12 Disclosure 1,7,17 6

*Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies.

Important Disclosures Required by U.S. Regulators

Disclosures marked with an asterisk may also be required by at least one jurisdiction in addition to the United States. See Important Disclosures Required by Non-US Regulators and Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. 7. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

Important Disclosures Required by Non-U.S. Regulators

Please also refer to disclosures in the Important Disclosures Required by US Regulators and the Explanatory Notes. 1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public or private offering for this company, for which it received fees. 6. 7. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this company calculated under computational methods required by US law. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment banking or financial advisory services within the past year.

17. Deutsche Bank and or/its affiliate(s) has a significant Non-Equity financial interest (this can include Bonds, Convertible Bonds, Credit Derivatives and Traded Loans) where the aggregate net exposure to the following issuer(s), or issuer(s) group, is more than 25m Euros. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/Disclosure.eqsr?ricCode=CWN.AX.

Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s) about the subject issuer and the securities of the issuer. In addition, the undersigned lead analyst(s) has not and will not receive any compensation for providing a specific recommendation or view in this report. Mark Wilson

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Historical recommendations and target price: Crown (CWN.AX)

(as of 3/5/2012)
10.00 9.00

3 1 2

5 6

8 9 10 11 12 13

Previous Recommendations Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9, 2002

8.00 7.00

Security Price

6.00 5.00 4.00 3.00 2.00 1.00 0.00 Mar 10

Jun 10

Sep 10

Dec 10

Mar 11

Date

Jun 11
8. 9.

Sep 11
3/8/2011: 25/8/2011:

Dec 11
Buy, Target Price Change AUD12.25 Buy, Target Price Change AUD11.80 Buy, Target Price Change AUD11.75 Buy, Target Price Change AUD11.65 Buy, Target Price Change AUD11.05 Buy, Target Price Change AUD11.10

1. 2. 3. 4. 5. 6. 7.

13/7/2010: 30/11/2010: 20/1/2011: 25/2/2011: 10/5/2011: 11/5/2011: 3/6/2011:

Buy, Target Price Change AUD9.60 Buy, Target Price Change AUD9.75 Buy, Target Price Change AUD10.05 Buy, Target Price Change AUD9.85 Buy, Target Price Change AUD11.10 Buy, Target Price Change AUD11.05 Buy, Target Price Change AUD11.30

10. 27/9/2011: 11. 27/10/2011: 12. 31/1/2012: 13. 24/2/2012:

Historical recommendations and target price: Echo Entertainment (EGP.AX)

(as of 3/5/2012)
AUD5.00 AUD4.50 AUD4.00 AUD3.50
Previous Recommendations

1 2

Strong Buy Buy Market Perform Underperform Not Rated Suspended Rating Current Recommendations Buy Hold Sell Not Rated Suspended Rating *New Recommendation Structure as of September 9, 2002

Security Price

AUD3.00 AUD2.50 AUD2.00 AUD1.50 AUD1.00 AUD0.50 AUDJun 11 Sep 11

Sell, Target Price Change AUD3.80

Date
2.

Dec 11
29/7/2011: Upgrade to Hold, AUD3.80

1.

6/6/2011:

Deutsche Bank AG/Sydney

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Equity rating key Buy: Based on a current 12- month view of total shareholder return (TSR = percentage change in share price from current price to projected target price plus projected dividend yield ) , we recommend that investors buy the stock. Sell: Based on a current 12-month view of total shareholder return, we recommend that investors sell the stock Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell. Notes: 1. Newly issued research recommendations and target prices always supersede previously published research. 2. Ratings definitions prior to 27 January, 2007 were: Buy: Expected total return (including dividends) of 10% or more over a 12-month period Hold: Expected total return (including dividends) between -10% and 10% over a 12-month period Sell: Expected total return (including dividends) of 10% or worse over a 12-month period

Equity rating dispersion and banking relationships

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Regulatory Disclosures 1. Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the "Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2. Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the SOLAR link at http://gm.db.com.

3. Country-Specific Disclosures
Australia and New Zealand: This research, and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act and New Zealand Financial Advisors Act respectively. Brazil: The views expressed above accurately reflect personal views of the authors about the subject company(ies) and its(their) securities, including in relation to Deutsche Bank. The compensation of the equity research analyst(s) is indirectly affected by revenues deriving from the business and financial transactions of Deutsche Bank. EU countries: Disclosures relating to our obligations under MiFiD can be found at http://www.globalmarkets.db.com/riskdisclosures. Japan: Disclosures under the Financial Instruments and Exchange Law: Company name - Deutsche Securities Inc. Registration number - Registered as a financial instruments dealer by the Head of the Kanto Local Finance Bureau (Kinsho) No. 117. Member of associations: JSDA, Type II Financial Instruments Firms Association, The Financial Futures Association of Japan, Japan Securities Investment Advisers Association. Commissions and risks involved in stock transactions - for stock transactions, we charge stock commissions and consumption tax by multiplying the transaction amount by the commission rate agreed with each customer. Stock transactions can lead to losses as a result of share price fluctuations and other factors. Transactions in foreign stocks can lead to additional losses stemming from foreign exchange fluctuations. "Moody's", "Standard & Poor's", and "Fitch" mentioned in this report are not registered credit rating agencies in Japan unless Japan or "Nippon" is specifically designated in the name of the entity. Russia: This information, interpretation and opinions submitted herein are not in the context of, and do not constitute, any appraisal or evaluation activity requiring a license in the Russian Federation.

Deutsche Bank AG/Sydney

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Deutsche Bank AG/Sydney International locations

Deutsche Bank Securities Inc. 60 Wall Street New York, NY 10005 United States of America Tel: (1) 212 250 2500 Deutsche Bank AG London 1 Great Winchester Street London EC2N 2EQ United Kingdom Tel: (44) 20 7545 8000 Deutsche Bank AG Groe Gallusstrae 10-14 60272 Frankfurt am Main Germany Tel: (49) 69 910 00 Deutsche Bank AG Deutsche Bank Place Level 16 Corner of Hunter & Phillip Streets Sydney, NSW 2000 Australia Tel: (61) 2 8258 1234

Deutsche Bank AG Filiale Hongkong International Commerce Centre, 1 Austin Road West,Kowloon, Hong Kong Tel: (852) 2203 8888

Deutsche Securities Inc. 2-11-1 Nagatacho Sanno Park Tower Chiyoda-ku, Tokyo 100-6171 Japan Tel: (81) 3 5156 6770

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