GGRAsia – Club Cubic operator files for listing, eyes expansion

Club Cubic operator files for listing, eyes expansion

Mar 17, 2016 Newsdesk Latest News, Macau, Top of the deck

Luk Hing Entertainment Group Holdings Ltd, operator of the Club Cubic nightclub (pictured) at Melco Crown Entertainment Ltd’s City of Dreams casino resort on Cotai, filed this week for a listing on the Hong Kong Stock Exchange’s small cap Growth Enterprise Market.

The firm said it is in the process of “preparing for the expansion” of Club Cubic to a premises adjacent to the current venue. Luk Hing added it expects to incur capital expenditure of “not less than HKD15 million (US$1.93 million)” for the expansion.

Luk Hing’s filing “lifts the veil on Macau’s nightclub industry,” said a note on Wednesday from Union Gaming Securities Asia Ltd.

As part of its application, Luk Hing gave detailed information on its 2015 operating revenues, profits and margins.

The amount Luk Hing seeks to raise via a listing was edited out of the publicly available version of Monday’s filing. The public version said the planned expansion of Club Cubic would consume some proceeds – and the opening of new clubs. Club Cubic currently covers 25,780 square feet (2,395 sq metres) a modest footprint compared to most Las Vegas casino nightclubs.

Luk Hing’s announcement comes at a time the Macau government has said it would like the city’s six casino operators to increase the range of non-gaming amenities offered at their casinos.

In 2014, fewer than 10 percent of Macau casino resorts’ gross revenues came from non-gaming activities, estimated Fitch Ratings Inc in a report issued in August.

Union Gaming analyst Grant Govertsen said in his firm’s Wednesday note offering commentary on the Luk Hing filing: “The 2015 revenue story of US$16.2 million at [Club] Cubic compares to the top clubs in Las Vegas [each] generating in excess of US$100 million.”

He added: “The nightclub scene in Macau is very small relative to Las Vegas and consists of Cubic and just a handful of other venues including the recently opened Pacha Macau at Melco Crown Entertainment’s Studio City.”

The latter reference was to a Cotai property majority-owned by Melco Crown that launched on October 27.

Operating numbers

In its Monday filing Luk Hing said that in 2015 Club Cubic generated an after-tax profit of HKD9.4 million, and achieved a net profit margin of 7.5 percent.

Some other insights in the offering document were that the club in 2015 generated a total of 131,928 customer visits, or approximately 361 per day; and that the average spending per customer was HKD822. Sales of champagne amounted to HKD52.5 million, or 56 percent of all beverage sales at the club during the 12 months.

During 2015 Luk Hing paid HKD11.2 million in rent and profit share to City of Dreams, added the filing.

Union Gaming’s note said: “We estimate Melco Crown received approximately US$1.4 million in rent and profit share in 2015 that would show up in ‘entertainment, retail and other’ on Melco Crown’s profit and loss statement. [Club] Cubic-related revenue to Melco Crown was slightly more than 1 percent of this line item last year.”

The brokerage added, referring to another nightclub brand recently added to Melco Crown’s Macau portfolio of non-gaming operations: “With Pacha operating at Studio City, nightclub-related revenue for Melco Crown is likely to increase significantly in 2016, although we would still expect it to remain a rounding error as it relates to the total ‘entertainment, retail and other’ revenue line item.”

Union Gaming estimated a “significant portion” of the customer base at Club Cubic is Macau locals, what it termed expatriate ‘locals’, and Hong Kong residents, “hence the stability in revenue in 2015”.

On Tuesday, Melco Crown’s Macau market rival Galaxy Entertainment Group Ltd announced it was reopening on April 15 the China Rouge nightclub at its Cotai flagship property Galaxy Macau. It will have what the firm termed a new “open door and booking policy”.

The club had been “temporarily closed for enhancement” with effect from March 30 last year, the firm had previously said.

China Rouge opened in March 2012 as an “exclusive members only performance lounge,” according to company statements at the time.

Macau casino operator Wynn Macau Ltd opened a Tryst nightclub at Wynn Macau in December 2006, but closed it after only four months.

Several investment analysts have told GGRAsia that non-gaming amenities have the potential to be popular in Macau if the content is market appropriate.

Melco Crown’s The House of Dancing Water show at City of Dreams had its premiere in September 2010 and is still in residence there.

Earlier this month Lui Che Woo, chairman of Galaxy Entertainment, told business news specialist Bloomberg that the firm planned to build a small but “unique” theme park as part of the next two phases of its Galaxy Macau property.