The decision to withdraw VIP gambling from Macau’s Studio City casino resort with effect from 2020 was about managing the “precious resource” of live-dealer tables, said Lawrence Ho Yau Lung (pictured), chairman and chief executive of Melco Resorts and Entertainment Ltd, the property’s majority owner.
“I can only speak for Melco, and the precious [table] resource that has been given to us by the Macau government. Melco is constantly looking for ways to best allocate our assets, and that whole exercise is purely based on that,” Mr Ho told reporters on Wednesday.
He also stated his firm “would not say no” if the Macau government offered it fresh table allocation under the city’s table cap policy in return for the group building phase two of Studio City.
Mr Ho said phase two – with a US$1.4-billion budget – was waiting for the “final” permit from the Macau government and then construction could start. The firm had previously been granted a three-year extension on the development deadline for phase two by the local authorities under the conditions of the land concession.
The CEO also mentioned the 40 new-to-market tables granted this month by the local government, which are now in operation on the “general gaming floor” at his firm’s City of Dreams Macau property. Melco Resorts had moved 40 tables from the gaming floor at City of Dreams Macau to the US$1.1-billion Morpheus hotel tower, opened in June.
The executive additionally stated that Suncity Group and Tak Chun Group, two major junket operators, had “within the last few days” opened revamped VIP gambling facilities at City of Dreams Macau, but without an increase in table capacity.
“I think it is the same amount of gaming tables, but in bigger spaces: more luxurious, prettier, newer spaces,” he said.
On the topic of possible table allocation for the investment in phase two of Studio City – which he stated would be all for non-gaming facilities – Mr Ho observed that Studio City had been “built for 400 tables”.
“As you know, we opened with 250. So we still have space if we were lucky enough that the government awards us for additional investment: we are not going to say no,” he added.
Phase two, shareholders
Mr Ho made the comments to the media on Wednesday as the company previewed a new live show for Studio City. Mr Ho said that “Elēkrŏn” – which he described as a “car stunt” show – would be less susceptible to displaying “cultural insensitivities” than some previous non-gaming offerings in the Macau market. He declined to be drawn on the budget for Elēkrŏn, although he did mention that it had not needed a purpose-built theatre like some shows, as it is being performed in Studio City’s Event Center.
He further noted that with Studio City “the target audience was always based on mass [market] given its geographical positioning next to the Lotus Bridge and Hengqin Island”.
Regarding phase two of the property, “the design of it is all ready,” Mr Ho stated. “What we are waiting for now is the last permit from the Macau government to be issued for us to build. We are actually ready for laying foundation, and the pre-drilling work was all done.”
He noted that – as mentioned in the group’s third-quarter earnings call – phase two of Studio City was “to focus 100 percent on non-gaming”. “We are going to have 1,000 hotel rooms, and a big water park,” he reiterated on Wednesday.
Acknowledging the presence of sizeable minority partners in Studio City – Melco Resorts has circa 53 percent of the entity that controls it – Mr Ho said that in the long term his group hoped “to own 100 percent of Studio City”.
“But at the same time, we want to see what is best for Studio City. That’s why we launched the IPO for Studio City, so that we have a better capital structure,” he stated, in a reference to an initial public offering (IPO) for Studio City last October in the United States.
He added: “When it is fair for all shareholders and that is what they want, we will see what we can do.”
Mr Ho said additionally that a refinancing exercise announced on Tuesday would not lead to “any change to the existing shareholding structure [of Studio City]”. A unit of the controlling entity of Studio City proposed on Tuesday to conduct an international offering of senior notes, with proceeds to be used for a cash tender offer for the firm’s outstanding notes due in 2020.
2019 outlook, Japan
Mr Ho also gave some commentary on the global economic conditions that had contributed to China’s economic slowdown and had been forecast by some analysts to bring a moderation in demand for Macau gambling during the first half. He mentioned the possibility of “single-digit” or “mid single-digit” growth for the year.
The gaming entrepreneur additionally reiterated his company’s interest in partnering with a major Japanese city – such as Osaka – or Tokyo or thereabouts – for what he called the “priceless opportunity” of access to a Japan casino licence.
Regarding the 2019 trading outlook, particularly in the Macau market, he said it was “not going to be an easy year because of the trade war tension between China and the United States”. But he added: “My expectation is that the [market-wide] gross gaming revenue will see single-digit growth, or a mid single-digit growth. Our company is different in the sense that we are more skewed towards mass: City of Dreams is premium mass, and Studio City ‘mass mass’. So I think we are more insulated [from a gaming revenue fall risk].”
Concerning the Japan market opportunity, Mr Ho said he thought the firm’s record in entertainment would help. “The House of Dancing Water,” an in-house show at City of Dreams Macau has been a long-running success in a market with a patchy record for non-gaming attractions. Mr Ho said differentiating factors in favour of his group for Japan, included the “track record in entertainment, our focus on premium guests and the fact we have a huge China database”.
“That’s not to say we are not going to attract visitors from other parts of the world” for a Japan resort, noted Mr Ho. “The opportunity is priceless to us, and we will do everything possible [to win]. I have a very long investment horizon,” he added.
(Updated 10.30am, Jan 24)
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"The Hong Kong protests may hurt Macau gross gaming revenue by about mid-single-digit (i.e., half of maximum visitation exposure), which should fade away gradually as people will find alternative ways to visit Macau”
DS Kim, Jeremy An and Christine Wang
Analysts at brokerage JP Morgan Securities (Asia Pacific) Ltd