VIP gambling room investor Iao Kun Group Holding Co Ltd on Tuesday reported a swing to a net loss in the first quarter, attributable to lower rolling chip turnover and lower win rate during the period.
The Nasdaq-listed company reported a net loss of US$3.5 million for the three months ended March 31, compared to a net profit of US$17.1 million in the prior-year period. The firm said the first quarter results had no fair value changes in contingent consideration liability for the King’s Gaming, Bao Li Gaming and the Oriental VIP Room acquisitions.
Iao Kun recorded revenue of US$17.9 million in the first quarter, down 57 percent year-on-year. It said the decline was due to several factors, including “lower rolling chip turnover during the quarter, as well as a reduction of players for VIP baccarat, consistent with the overall decline of gaming revenue in Macau”.
Other factors negatively affecting the first quarter results included the economic downturn and ongoing anti-corruption campaign in mainland China and the tightening of government policies there, including restrictions on credit card usage, said the firm.
Iao Kun’s rolling chip turnover in Macau for the three months to March 31 decreased 45 percent year-on-year to US$1.2 billion, compared to US$2.2 billion in the prior-year period.
Macau market wide, VIP baccarat gross gaming revenue slipped 19.3 percent in the first three months of 2016 compared to a year earlier, according to official data.
Iao Kun’s business partners promote five high roller facilities in Macau casinos. In May 2015, Iao Kun announced completion of a deal allowing the firm to expand its casino junket operations to Crown Perth Casino and to Crown Melbourne Casino, in Australia.
In Tuesday’s filing, Iao Kun said it incurred lower commissions to junket agents for the three months ended March 31. Commission to junket agents amounted to US$13.7 million in the first quarter, down by 51 percent from the prior-year period.
Commission to these agents as a percentage of rolling chip turnover was 1.15 percent in the period, a reduction from 1.28 percent in the first quarter of 2015.
The company additionally said it decreased its selling, general and administrative expenses for the period, primarily due to the following factors: since September 2015 no longer paying a monthly table rental to the L’Arc Casino on Macau peninsula; lower overall VIP gaming room operating expenses; and not paying a year-end bonuses to cage employees.
“The first quarter of 2016 continued to see a challenging environment both globally and with respect to the VIP market in Macau, and as a result, we continue to prudently manage our capital,” said Lam Man Pou, chairman of Iao Kun, in a statement accompanying results.
He added: “While we remain positioned to benefit from any turnaround in the VIP market, we continue to seek additional opportunities in overseas markets to further diversify our revenue streams. We remain committed to expanding our overall presence and generating long-term value for our shareholders.”
The company maintained its 2016 rolling chip turnover guidance for its five existing VIP rooms in Macau at between US$3.5 billion and US$4.5 billion.
Iao Kun on Monday announced that its rolling chip turnover for the first five months of 2016 was US$1.83 billion, down 46 percent year-on-year.
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"The Hong Kong protests may hurt Macau gross gaming revenue by about mid-single-digit (i.e., half of maximum visitation exposure), which should fade away gradually as people will find alternative ways to visit Macau”
DS Kim, Jeremy An and Christine Wang
Analysts at brokerage JP Morgan Securities (Asia Pacific) Ltd