S&P Global Ratings has revised its outlook on the long-term issuer credit ratings of Japanese conglomerate Universal Entertainment Corp from ‘stable’ to ‘negative’. The institution stated, in reference to the company’s performance, that a “turnaround remains elusive”, as the performance of the group’s businesses, including the Okada Manila casino resort in the Philippine capital, remains subpar.
“Universal Entertainment’s domestic pachinko and pachislot… machines business and the Philippine casino resort business are performing far worse than we had expected,” it said in a rating action issued on Monday. “This raises the possibility that its financial condition will continue to deteriorate over the next year or so.”
S&P Global affirmed its ‘B’ long-term issuer credit rating and ‘B’ long-term senior debt rating on the company. The level is considered non-investment grade, or speculative.
Okada Manila (pictured in a file photo) is operated by Tiger Resort, Leisure and Entertainment Inc, a unit of Universal Entertainment.
“The Philippines’ casino resort business is likely to see only a modest improvement in earnings,” suggested S&P Global in its Monday memo.
It added: “The number of international tourists visiting the Philippines is increasing only slowly and increased competition in the country’s casino resort market has worsened the business environment for Universal Entertainment, in our opinion.”
S&P Global acknowledged that Okada Manila was “promoting measures such as strengthening non-gaming activities” and “reducing costs”.
“However, we expect EBITDA [earnings before interest, taxation, depreciation and amortisation] for this business to be only around JPY24 billion [US$165.9 million] over the next year or so,” the institution said.
Okada Manila’s first-quarter casino gross gaming revenue (GGR) declined by 11.1 percent year-on-year, according to an April announcement from Tiger Resort.
For full-year 2024, GGR at Okada Manila stood at nearly PHP34.82 billion (US$623.8 million), down 21.8 percent from the previous year. Adjusted segmental EBITDA for full-year 2024 reached nearly PHP7.64 billion, down 37.8 percent from 2023.
S&P Global stated it expected Universal Entertainment’s consolidated EBITDA to “recover from a bottom of JPY21.2 billion in fiscal 2024 to about JPY29 billion this fiscal year”.
This would represent “about 70 percent of the EBITDA booked in a relatively strong fiscal 2023,” it added.
“There is a certain possibility that [Universal’s] earnings may fall short of expectations and the outlook for recovery may be pushed back,” stated the ratings agency.
It added: “We believe the risk of the company breaching financial covenants, such as a lower limit of interest coverage, is low at this point. However, we still believe that a slow turnaround could limit its capacity.”
