Asian casino developer and operator Melco Crown Entertainment Ltd on Thursday reported revenue of US$945.7 million for the three months to September 30, down 16 percent from the prior-year period. “The decline in net revenue was primarily attributable to lower rolling chip revenues and mass-market table games revenues in Macau, partially offset by the net revenue generated by City of Dreams Manila,” the firm said in a filing.
Nasdaq-listed Melco Crown developed and operates casino resorts in Macau and the Philippines. The company opened its US$3.2-billion mass-focused Macau casino resort Studio City on October 27, after the reporting period.
The casino operator saw net income for the third quarter of 2015 fall 74.9 percent year-on-year. On a U.S. generally accepted accounting principles (GAAP) basis, such net income for the third quarter was US$33.2 million compared to US$132.2 million in the third quarter of 2014.
The company – which in its third quarter results statement said it had maintained total cash and bank balances of US$2.8 billion as of September 30 – announced a quarterly dividend of US$0.0061 per share.
Melco Crown reported adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) of US$237.3 million for the period, down 22 percent from a year earlier. It was still a 15.8 percent improvement from the second quarter.
“Our results in the third quarter of 2015 were impressive, particularly given the challenging demand backdrop in Macau, with our Macau property EBITDA expanding over 10 percent sequentially,” Lawrence Ho Yau Lung, Melco Crown’s co-chairman and chief executive, said in a statement accompanying the results.
Melco Crown is a joint venture between Hong Kong-listed Melco International Development Ltd, headed by Mr Ho, and Australian casino operator Crown Resorts Ltd.
Melco Crown’s operating results were “broadly in line with expectations,” analysts Matthew Ryan and Michael Aspinall of JP Morgan Securities Australia Ltd said in a note on Friday.
“Our property level EBITDA forecasts are little changed, with lower City of Dreams Macau offset by higher City of Dreams Manila,” they added.
Group wide, casino revenue for the third quarter was US$900.5 million, representing a decrease of approximately 16.9 percent from a year earlier. Last year’s comparison didn’t include City of Dreams Manila.
For the quarter ended September 30, net revenue at City of Dreams Macau (pictured) was US$665.6 million compared to US$911.6 million in the third quarter of 2014. City of Dreams’ adjusted EBITDA decreased 31 percent year-on-year to US$191.5 million in the third quarter.
Rolling chip volume at the property totalled US$9.3 billion for the third quarter, down 46.2 percent from a year earlier. Mass-market table drop decreased to US$1.2 billion compared with US$1.3 billion in the third quarter of 2014.
Total non-gaming revenue at City of Dreams Macau declined nearly 10 percent year-on-year to US$66.8 million in the three months to September 30.
For the third quarter of 2015, net revenue at City of Dreams Manila – which had an official opening in February – was US$91.7 million. Rolling chip volume for the period totalled US$1.2 billion.
City of Dreams Manila generated adjusted EBITDA of US$24.4 million in the third quarter of 2015, up 93.7 percent sequentially. The sequential growth in property EBITDA at the Manila property was “a result of strong traction in the rolling chip segment and further expansion of its mass table and slot machine revenue,” Melco Crown said.
“We believe that City of Dreams Manila is well positioned for long term success as Manila transforms into an exciting and diverse tourism destination for the region,” said Mr Ho.
UBS Securities Asia Ltd said Melco Crown’s Philippines business delivered EBITDA “ahead of consensus” of about US$20 million.
“VIP volumes increased to US$1.2 billion in the third quarter – versus US$500 million in the second quarter and our expectations of US$1 billion – as junkets including Suncity [Group] started to ramp more meaningfully,” said analysts Anthony Wong and Angus Chan.
“We believe City of Dreams Manila is still in a ramp-up phase, especially in the VIP segment with recent junket openings still in initial stages of operations,” they added.
Studio City ramp-up
Melco Crown was granted by the Macau government a new-to-market allocation of 250 gaming tables – 200 for use from the opening and a further 50 from January.
The company’s chief operating office, Ted Chan Ying Tat, said the property opened focused on the mass-market segment.
“We got 145 [tables] in the mass area and we got 45 tables in the premium mass area, which is our signature club area,” Mr Chan said on a conference call with analysts on Thursday.
Premium mass-market players account for the top of the mass market, playing at higher denominations than the market average
Melco Crown’s COO said Studio City’s non-gaming facilities have performed well since the opening. Occupancy at the resort’s 1,600 hotel rooms was over 90 percent, said Mr Chan, adding that the resort’s hotel is more than 85 percent booked for this month, and close to 70 percent booked for December.
Mr Chan said while major new properties opening in Macau tend to take at least one and a half years “to ramp up fully”, Studio City will likely raise the level of its operations in a short period of time.
“I’m sure we are able to ramp up quicker due to numerous initiatives including that we transfer a majority of our gaming colleagues from the current operation to Studio City so that the ramp up time will substantially reduce in reference to the other properties,” Mr Chan said.
About 2,000 of Studio City’s 5,500 full-time employees came from existing operations, including 300 from Manila, the firm’s management said.
The company however is still focused on executing its development pipeline, including expanded retail and the fifth hotel tower at City of Dreams Macau, and to build out the remaining one-third of the land grant to Studio City.
“We still have a decent development pipeline… returning capital to shareholders of course will be the number one priority, but I think over the next one or two years, we still have to finish up some of that pipeline,” Mr Ho said on the conference call.
In May, Melco Crown had declared a first quarter dividend per American depositary share (ADS) of US$0.1293. That was 74 percent lower than in the prior-year period. Its second quarter dividend announced in August, was US$0.0134 per ADS.
Investors have recently issued commentary on leveraging levels at businesses connected to Melco Crown. On Thursday, Melco Crown confirmed that the finance entity of its majority-owned Studio City property issued a letter requesting, among other things, approvals from the lenders of the Studio City US$1.4 billion term loan and revolving credit facility “to amend the loan documentation”.
“The proposed amendments include changing the Studio City project opening date condition from 400 to 250 tables, consequential adjustments to the financial covenants, and rescheduling the commencement of financial covenant testing,” the firm added.
Melco Crown revealed in an April filing that it might technically fall into default on a Studio City project loan if unable to open to the public by October 2016 “with a minimum 400 gaming tables available for operation”.
Moody’s Investors Service Inc said this week it has revised to “negative” from “stable” the outlook of Studio City Finance Ltd due to the lower than expected table allocation from the Macau government for Studio City.
On Thursday’s conference call, Melco Crown reiterated the US$50 million of annualised savings it identified last quarter would largely be realised in the fourth quarter due to the shift in operating expenses.
“We got some efficiencies in the second quarter and the third quarter, but the vast bulk will be in the fourth related to the [Studio City] opening,” said Melco Crown’s chief financial officer, Geoffrey Davis.
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"The most worrying [thing] is whether [mainland] China will again tighten the issuance of travel visas [for visits to Macau]"
Luiz Lam Kai Kuong
Macau junket investor