Melco Resorts and Entertainment Ltd has reported a 25-percent fall, year-on-year in its net profit for the first quarter of this year. The developer and operator of casino resorts in Macau and the Philippines said the net income attributable to the company for the period ending March 31 was about US$117.4 million, compared to US$156.6 million in the corresponding period last year.
The Nasdaq Stock Market-listed company reported total operating revenue for the first quarter of US$1.36 billion, an increase of about 4 percent compared to the US$1.31 billion recorded in the same period last year.
Adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) was US$406.8 million for the first quarter, compared US$401.8 million in the first quarter of last year – an increase of about 1 percent.
The company’s unaudited financial results for the first quarter were published on Tuesday, at the beginning of the trading day in New York.
Last quarter’s results included non-operating expenses of US$65.9 million related to interest expenses and US$156.3 million in depreciation and amortisation. The company said its operating income for the first quarter of was US$188.0 million, compared with operating income of US$221.1 million in the first quarter of 2018 – a 15-percent fall.
Melco Resorts board has declared a quarterly dividend of US$0.1551 per American depositary share. The company operates Altira Macau, Studio City and City of Dreams in Macau; a chain of venues with electronic gaming machines called Mocha Club throughout Macau; and the City of Dreams Manila.
In prepared comments released with the results, Melco Resorts chairman and chief executive Lawrence Ho Yau Lung said the company’s results represented “solid EBITDA delivery despite volatility experienced by the Macau VIP market”. In a conference call with investment analysts, Mr Ho said less than 10 percent of the company’s EBIDTA in Macau was contributed by VIP gamblers.
Brokerage Sanford C. Bernstein Ltd said in a Tuesday note that Melco Resorts first-quarter results were “in line with consensus, helped by high [gaming] hold”.
“Macau GGR [gross gaming revenue] of US$1.4 billion … was better than expected due to stronger VIP, but Mass GGR was not as impressive (year-on-year gain of 6 percent, +1 percent quarter-on-quarter) – not as strong as the market,” wrote analysts Vitaly Umansky, Eunice Lee and Kelsey Zhu.
In its published analysis of the results, Melco Resorts said the increase in revenue during the reporting period primarily came from an improved performance in mass-market table games and higher non-gaming revenue from the Morpheus Macau. The US$1.1-billion Morpheus (pictured) at the City of Dreams Macau complex in Cotai includes a floor dedicated to gaming, as well about 770 hotel rooms and restaurants.
The company did not report data from Morpheus, but the City of Dreams complex remains the single biggest provider of Melco Resorts’ EBITDA. Adjusted EBITDA at City of Dreams has increased by about 9.9 percent in year-on-year terms to US$228.6 million but eased slightly compared to last quarter by less than 0.5 percent.
Rolling chip volume at City of Dreams Macau totalled US$10.2 billion for the first quarter versus US$11.1 billion in the prior-year period. The rolling chip win rate was 3.4 percent, above the expected rolling chip win rate range of 2.7 percent to 3.0 percent. Mass market table games drop increased 11.5 percent year-on-year to nearly US$1.32 billion in the three months to March 31.
At the Studio City casino resort, also in Macau’s Cotai district, adjusted EBITDA has declined by about 12 percent in year-on-year terms to US$96.4 million, and by about 6 percent between the fourth quarter of last year and first quarter.
Studio City currently contributes about a quarter of the company’s net revenues and on the conference call, Mr Ho said Studio City had “delivered record mass table revenues” in the first quarter. He emphasised the non-gaming assets the company is developing at Studio City, including the Legend Heroes Park electronic gaming facility and the Flip Out trampoline park, opening later this year.
The overall weaker results are due to ongoing softer rolling chip data, the company said.
Separately, Studio City International Holdings Ltd announced its first-quarter results, saying it generated gross gaming revenues of US$348.9 million to March 31, compared to US$425.6 million in the same period last year.
“Revenues from provision of gaming related services in relation to the Studio City casino VIP gaming operations amounted to US$0.9 million in the first quarter of 2019, compared with US$12.3 million in the first quarter of 2018,” the earning statement said.
Net income attributable to Studio City International for the first quarter of 2019 was US$2.9 million, compared with US$8.8 million in the first quarter of last year.
In January, Melco Resorts – which is the main promoter of the property and its majority owner – said it would shutter VIP rolling chip operations by next year.
On May 1, a minor partner in the Studio City property, New Cotai Holdings LLC, filed for protective bankruptcy in the United States, citing “unanticipated declines in the Macau gaming market” and a lower-than-anticipated allocation of gaming tables as some of the reasons for its trading woes.
On the Melco Resorts conference call, executives said they could not add any details to its partner’s plight. But they added: “We don’t anticipate these bankruptcy proceedings to have any material impact on Studio City’s operations, its strategy or its ability to raise funds.”
New Cotai is backed by investment funds Silver Point Capital LP and Oaktree Capital Group LP. New Cotai owned 40 percent of Studio City prior to an initial public offering, or IPO, completed in November. Subsequent to the IPO, New Cotai’s holding was 23 percent of the Studio City holding company’s American depositary shares, with other Silver Point affiliates receiving just over 13 percent.
Expanding VIP in Manila
City of Dreams Manila generated EBITDA of US$60.5 million in the first quarter, compared to US$58.8 million in the comparable period last year.
“In the Philippines, City of Dreams Manila delivered EBITDA growth of 3 percent year-over-year. With increased competition in and around Entertainment City, we are more cautious about 2019 and beyond,” Mr Ho said.
That increased competition saw City of Dreams Manila’s rolling chip volume shrink to US$2.3 billion in the first quarter, versus US$2.8 billion in the first quarter last year. The rolling chip win rate was 3.2 percent in the first quarter, compared to 2.9 percent in the first quarter of last year. Mass market table games drop decreased to US$184.3 million for the reporting period, compared with US$188.2 million in the prior-year period.
Melco Resorts did not offer data on net profit for the facility in Manila. The company said however that it was focused on growing its VIP share of the market there.
On the Melco Resorts conference call, Kevin Benning, senior vice president and chief operating officer of Melco Resorts and Entertainment (Philippines) Corp, said: “We we’re opening up new casual junket space over the next month which will give us an additional 10 tables as well as renovating our overall VIP space … We are going to have some very nice high-end space for our top junkets.”
On the call, Melco Resorts’ CEO also said efforts to be a part of the expansion of Japan’s gaming environment were its “single-most important initiative”.
Melco Resorts is one of the casino development companies seeking to win a licence when Japan opens its first casino resort sometime next decade. Japan legalised casino gambling last year and one region, Osaka, has opened request-for-concept applications in its process to identify potential development partners.
Mr Ho added no specific details about his company’s attempts to establish itself there but did say Melco Resorts was in “dialogue with partners in several regions” and those discussions were “making good progress”. Mr Ho said a site in Osaka, the Kanto region or elsewhere were the company’s preferred areas.
In his prepared comments, Mr Ho said: “Japan continues to be a core focus for us. We expect development of the next generation of integrated resorts to soon commence in this incredibly exciting, yet currently underpenetrated, tourism destination.”
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”There are likely to be cancellations of some Chinese New Year casino and junket parties and events [in Macau]”
Vitaly Umansky, Eunice Lee and Kelsey Zhu
Sanford Bernstein analysts