Asian casino operator Melco Crown Entertainment Ltd reported net income of US$43.3 million for the fourth quarter of 2016, compared to a net loss of US$12.3 million in the same period of 2015, beating forecasts of investment analysts.
The company – which operates casinos in Macau and Manila – said net revenue for the three months ended December 31 was US$1.19 billion, representing a year-on-year increase of 13 percent. The improvement in net revenue was related to “a fully-operating Studio City, which started operations in October 2015, and the increase in casino revenues at City of Dreams Manila, partially offset by lower casino revenues at City of Dreams in Macau and Altira Macau,” Melco Crown said in a Thursday release.
Adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) was US$304.3 million for the fourth quarter of 2016, as compared to adjusted property EBITDA of US$236.4 million in the fourth quarter of 2015, representing an increase of 29 percent.
Nasdaq-listed Melco Crown increased its normal quarterly dividend payment to US$0.09 per American depositary share (ADS). The increase had already been announced by the firm.
“Our flagship property in Macau, City of Dreams, generated adjusted property EBITDA of approximately US$190 million, an increase of over 10 percent compared to the prior quarter, despite an increase in supply in Macau,” Melco Crown’s chairman and chief executive Lawrence Ho Yau Lung said in a statement following the results announcement.
Mr Ho also noted that Melco International Development Ltd had completed on Thursday the acquisition of a majority stake in Melco Crown. Melco International now controls 51.3 percent of Melco Crown.
“This transaction highlights the steadfast confidence and commitment I have in the markets where we operate,” Mr Ho said.
For full-year 2016, Melco Crown reported net revenue of US$4.5 billion versus US$4.0 billion in the prior year. Net income was US$175.9 million, an increase of 66.4 percent from 2015.
Macau ‘more mature’
During a Thursday conference call with investment analysts to discuss Melco Crown’s fourth quarter results, Mr Ho said the “anti-corruption, anti-extravagance crackdown” in mainland China had “subsided”.
Investment analysts have noted that an anti-corruption campaign in China had played a part in moderating the demand for gambling in Macau since 2014.
Mr Ho added: “Our customers and the people who really did nothing wrong over these years, they don’t have a fear of coming to Macau. So we are seeing that, and I think that is by far and away the main reason for the recovery [in Macau’s VIP and premium mass segment].”
Mr Ho said the “significant consolidation” that had taken place in the Macau junket sector also was helping to drive a healthier industry.
“The remaining junket operators now, all have much better financial base to build upon. And having the confidence of a genuine return of demand from players, we see that the junket operators are also becoming more aggressive in terms of liquidity.”
The Melco Crown executive added that the Macau market was becoming more mature, after posting consecutive declines in gross gaming revenue, as measured in year-on-year terms, between June 2014 and July 2016.
“For the last six months, Macau has had growth,” he said. Mr Ho added that performance in the recent Chinese New Year holiday season – historically a peak period for Macau’s gaming sector – was within expectations. “It wasn’t blow-out phenomenal.”
He added: “Macau has become a much more mature market compared to previously. So you’ll see less peaks and certainly less troughs.”
Mr Ho however said it was “still early” to revise company forecasts for 2017. “Macau would be from our standpoint a mid- to high-single-digit [gross gaming revenue] growth rate, which is extremely positive,” he said.
Studio City improving
Melco Crown’s Studio City (pictured) reported net revenue of US$246.2 million for the fourth quarter of 2016 compared to US$123.2 million in the fourth quarter of 2015, according to Melco Crown’s Thursday announcement. The property generated adjusted EBITDA of US$56.7 million in the fourth quarter of 2016, up by 350 percent in year-on-year terms.
Rolling chip volume totalled US$1.3 billion for the fourth quarter of 2016. The firm introduced VIP gaming operations at Studio City last November.
“We anticipate a further ramp in the property’s VIP operations in the coming quarters,” Mr Ho said during Thursday’s conference call.
He added that the company expected Studio City’s overall number of visitors to improve once construction works around the property for Macau’s light rail transit system were completed. Mr Ho said the Macau government had told Melco Crown those works could be completed by 2017-end.
In a note commenting the Melco Crown fourth quarter results, Morgan Stanley Asia Ltd stated it expected performance at Studio City to continue ramping up in 2017. Analysts Praveen Choudhary and Alex Poon added that Melco Crown’s fourth quarter results hinted that cannibalisation by Studio City of clients from sister property City of Dreams Macau “may be stabilising”.
Mass-market table games drop at Studio City increased to US$683.2 million compared with US$365.3 million in the fourth quarter of 2015, Melco Crown reported.
Total non-gaming revenue at Studio City in the fourth quarter of 2016 was US$53.3 million, a year-on-year increase of 41 percent.
For the quarter ended December 31, net revenue at City of Dreams was US$661.1 million, down by 1.2 percent in year-year terms.
Rolling chip volume at the property totalled US$11.1 billion for the fourth quarter of 2016 versus US$10.2 billion in the fourth quarter of 2015. Mass market table games drop decreased to US$1.11 billion compared with US$1.12 billion in the fourth quarter of 2015.
Positive Manila performance
In the Philippines, Melco Crown’s City of Dreams Manila continued “to increase its gaming market share by delivering another strong quarter fuelled by revenue growth across all gaming segments,” stated Mr Ho.
For the quarter ended December 31, net revenue at City of Dreams Manila was US$144.7 million, up year-on-year by 78.9 percent. The property generated adjusted EBITDA of US$50.2 million in the fourth quarter of 2016 compared to US$15.5 million a year earlier.
“The year-on-year improvement in adjusted EBITDA was primarily a result of increased casino revenues,” the firm stated.
Rolling chip volume for City of Dreams Manila totalled US$2.1 billion for the fourth quarter of 2016 versus US$1.3 billion in the fourth quarter of 2015. Mass-market table games drop was US$149.0 million for the fourth quarter of 2016, an increase of 40.2 percent in year-on-year terms.
Total non-gaming revenue at City of Dreams Manila in the fourth quarter of 2016 was US$28.1 million, compared with US$25.0 million in the fourth quarter of 2015.
According to Morgan Stanley, the “recent opening of [an] expressway to Entertainment City”, where City of Dreams Manila is located, “should accelerate growth” at the property.
Hong Kong-based Sanford C. Bernstein Ltd also expressed a positive forecast for the property in its comments of Melco Crown’s fourth quarter results. “City of Dreams Manila could be a surprising upside benefit to Melco Crown in the next few quarters if the traction it has shown remains on track,” said analysts Vitaly Umansky, Zhen Gong and Yang Xie in their note.
They added: “Once fully-ramped up, the property should generate better than fair share results on the strength of product positioning and management expertise. Further, cross-selling opportunities exist between Melco Crown’s Macau and Philippines operations which we believe the company will continue to exploit (as evident by the VIP junket driven volume growth).”
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"Our rolling chip business [at Tigre de Cristal casino, in the Russian Far East], targeting Asian customers, has achieved substantial growth as we continue to address the underserved Northeast Asian market"
Lawrence Ho Yau Lung
Chairman of gaming investor Summit Ascent Holdings Ltd