Gaming mix, debt provisions hit Macau 1Q margins: MS
Casino property earnings before interest, taxation, depreciation and amortisation (EBITDA) market wide in Macau declined 3 percent judged quarter-on-quarter in the first three months of 2016. That was despite Macau casino gross gaming revenue (GGR) rising 2.5 percent sequentially, said a note on Monday from bank Morgan Stanley.
It said the industry had experienced an 80 basis points contraction in margins judged quarter-on-quarter.
“Industry first quarter 2016 EBITDA was down 3 percent quarter-on-quarter and 7 percent year-on-year, worse than we had anticipated. It was driven by weaker retail, bad debt and mix change,” said analysts Praveen Choudhary, Alex Poon and Thomas Allen.
The “mix change” included, said Morgan Stanley, lower-margin VIP gambling growing 3 percent sequentially, compared to the 1 percent quarter-on-quarter expansion of the higher-margin mass table games and slots segments.
“VIP growth was [seen for] the first [time] in two years.Mass continued to grow, but slowed from 3 percent quarter-on-quarter growth in each of third quarter 2015 and fourth quarter 2015,” they noted.
Other factors – weighing market-wide on property EBITDA margin in the first quarter – included increases of 4 percent to 6 percent quarter-on-quarter in the number of mass tables, slots and hotel rooms in Macau, said Morgan Stanley. Cotai saw increases in such inventory of 4 percent to 10 percent quarter-on-quarter and 29 percent to 36 percent judged year-on-year.
Across the whole Macau market, “hotel occupancy fell 440 basis points quarter-on-quarter to 87.1 percent (weighted average) for flagship casino hotels in first quarter 2016, due to higher supply and lower visitation,” said Morgan Stanley.
The bank added that Melco Crown Entertainment Ltd, MGM China Holdings Ltd and Sands China Ltd “reported higher provisions for doubtful debts/bad debts sequentially”.
Sands China Ltd and Galaxy Entertainment Group Ltd’s Galaxy Macau respectively reported US$20 million and US$10 million quarter-on-quarter declines in retail rental income, stated Morgan Stanley.
“While Sands China’s decline was due to absence of turnover rent, Galaxy saw a drop due to tenant renegotiation,” said the analysts.
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