Macau VIP gambling room investor Iao Kun Group Holding Co Ltd announced on Friday it would be undertaking a “comprehensive strategic review” of its VIP gaming room operations in Macau. Such review is “due to the ongoing challenging VIP gaming environment [in Macau] and to enhance its operating performance,” the firm said in a press release.
As an initial cost-cutting measure, Iao Kun said it had closed its VIP gaming room at Sands Cotai Central – a property operated by Sands China Ltd in Macau’s Cotai district – effective August 31. The company also terminated its agreement with King’s Gaming Promotion Ltd relating to that VIP room, “as the current rolling chip turnover volume does not warrant the operation of five VIP gaming rooms” in Macau.
Nasdaq-listed Iao Kun said the closure of the room could generate annual overall savings of approximately US$750,000.
Following the closure of the VIP room at Sands Cotai Central, Iao Kun’s business partners will still promote four high roller facilities in Macau casinos, namely at: StarWorld; Galaxy Macau; City of Dreams Macau; and Le Royal Arc.
“Upon the completion of its strategic review, Iao Kun may further close an additional one or two VIP gaming rooms in order to further optimise its operating earnings,” the firm said in Friday’s press release. “Iao Kun will provide details with respect to any additional expense reductions in due course,” it added.
For the first seven months of 2016, Iao Kun recorded a rolling chip turnover of US$2.30 billion – an average of US$330 million per month – down 47 percent year-on-year. During the same period in 2015, the firm recorded aggregate roll of US$4.36 billion, an average of US$620 million per month.
“Given the lack of recovery in the VIP market in Macau and our expectations that this will continue for the foreseeable future, we are currently reviewing our overall operations in Macau in order to ensure their sustainability,” said Lam Man Pou, chairman of Iao Kun, in a statement included in the press release.
“We expect to take further prudent actions that we believe will be accretive to our earnings per share and to ensure the preservation of our capital as we continue to seek to generate long-term value for our shareholders,” added Mr Lam.
Brokerage Union Gaming Securities Asia Ltd said in a note on August 31 that Macau VIP revenue is “performing worse” than what it shows in the data issued by the city’s Gaming Inspection and Coordination Bureau, also known as DICJ.
“In second quarter 2016, the real decline in Macau’s VIP market was in excess of 21 percent versus a decline of less than 16 percent per the DICJ,” said analyst Grant Govertsen. He suggested the discrepancy between the regulator’s numbers and those of the market was because some operators reported their casino revenue in a different way to the gaming bureau than they did to their investors.
The brokerage additionally suggested that Macau junkets are “trying to transition to principals and owning/operating their own casinos” outside of Macau.
Iao Kun announced in late June that it was to acquire the Jeju Sun Hotel and Casino on Jeju Island, South Korea, from Philippines casino operator Bloomberry Resorts Corp. The firm said that the acquisition was the “optimal way” to diversify its business outside of Macau.
Last year, Iao Kun started trial operations in Australia, namely at Crown Perth Casino and Crown Melbourne Casino, two properties operated by Crown Resorts Ltd.
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"VIP growth [in Macau] is roaring back on the heels of last year’s economic stimulus – but we think this could stall once the effect of the stimulus and the Chinese housing bubble wears off – as it did in 2013-14"
Cameron McKnight and Robert Shore
Analysts at Wells Fargo Securities