Melco operating loss dips in 3Q, bad debt rises to US$32mln
Melco Resorts and Entertainment Ltd chairman and chief executive Lawrence Ho Yau Lung says the casino operator saw a “moderate recovery” in business levels during the third quarter as mainland China eased restrictions on travel to its main operating market, Macau.
The third-quarter net loss attributable to Melco Resorts was US$331.6 million.
Bad debt provision – mostly connected with gambling directly managed by the company rather than via third-party junkets according to Geoff Davis, chief financial officer – leapt in the third quarter, to US$32 million, versus US$10 million in the same quarter last year.
Mr Davis said on the firm’s earnings conference call, that judged year-on-year, the change in bad debt provision negatively affected earnings before interest, taxation, depreciation and amortisation (EBITDA) “by approximately US$22 million”.
A note from Vitaly Umansky, Tianjiao Yu and Kelsey Zhu, analysts at Sanford C. Bernstein Ltd said the bad debt provision was “largely tied to direct VIP, and partly due to slow return of players – who often repay debts when they wish to come back to Macau”.
They added: “Bad debt should start to reduce as more players return.”
Melco Resorts’ total operating revenues for the period between July and September were just under US$212.9 million, up by 21 percent from the second quarter, said the firm in its quarterly earnings statement issued on Thursday.
David Bain, an analyst at Roth Capital Partners LLC said in a note shortly afterward that Melco Resorts had reduced its target for EBITDA break-even, “to a mid- to high-20s of percent level of normalised revenue, from 30 percent to 35 percent, and premium mass continues to lead the Macau recovery”.
Starting from August 26 as part of travel-easing measures following the initial impact of Covid-19, eligible residents from the neighbouring mainland province of Guangdong have been allowed to apply for an exit visa for tourist trips to Macau, either as part of a tour group or under China’s Individual Visit Scheme programme. The measure was extended to residents from other mainland regions from September 23.
Operating revenues
Melco Resorts’ operating revenues were nonetheless down 85 percent from US$1.44 billion in the prior-year period.
“The decrease in total operating revenues was primarily attributable to softer performance in all gaming segments and non-gaming operations as a result of the Covid-19 pandemic, which resulted in a significant decline in inbound tourism in the third quarter of 2020,” said Melco Resorts.
Macao registered around 750,200 visitor arrivals between July and September, down by 92.4 percent from the same period of 2019.
Melco Resorts reported a net loss of just under US$331.6 million compared to a profit of nearly US$83.2 million in the prior-year quarter. The casino operator’s loss for the three months to September 30 was however smaller than the second-quarter’s US$368.1 million.
The group’s chief executive Mr Ho said in remarks contained in Melco Resorts’ results filing that he was “encouraged by the recent positive developments” such as the spending-stimulus scheme for mainland China tourists coming to Macau launched by the government on September 1.
“We continue to prudently manage our balance sheet,” he said.
Melco Resorts stated that as of September 30, it had cash and bank balances amounting to approximately US$1.9 billion, up by US$0.7 billion from July 30.
It had undrawn revolver facilities of approximately US$1.7 billion, after issuing new senior notes and offering Studio City shares to existing shareholders.
Nonetheless, the group’s adjusted property EBITDA were negative in the third quarter, to the tune of nearly US$76.7 million, compared to positive adjusted property EBITDA of nearly US$418.2 million in the third quarter of 2019.
At Melco Resorts’ Macau flagship, City of Dreams (pictured), third-quarter adjusted EBITDA was negative by US$49.2 million, compared to a positive of nearly US$233 million a year earlier. Revenues was US$91.4 million, compared to US$787.3 million in the prior-year quarter.
Studio City Phase 2, Cyprus, Japan
Meanwhile at Studio City casino resort in Macau third-quarter adjusted EBITDA was negative by US$21.7 million, compared to a positive of nearly US$106.4 million a year earlier. Revenues were US$30.8 million, compared to US$337.7 million in the prior-year quarter.
Despite “softer performance in all gaming segments and lower non-gaming revenue” at Studio City, Lawrence Ho said construction on the resort’s expansion “is progressing.”
But the company noted: “The Covid-19 outbreak has also impacted the construction of the Studio City Phase 2 project and the progress of construction work at the City of Dreams Mediterranean project. We currently expect additional time will be needed to complete the construction of these projects.”
The government of Cyprus, where Melco Resorts is building its City of Dreams Mediterranean flagship venue, announced a 11pm to 5pm curfew from Thursday through the end of the month.
The company’s City of Dreams Manila resort in the Philippines posted a positive third-quarter adjusted EBITDA of US$5.2 million, down from US$49.9 million in the prior-year quarter. Revenues were US$43.4 million, compared to US$130.5 million in the third quarter of 2019.
Melco Resorts stressed that City of Dreams Manila has been conducting a trial run of its gaming and hospitality operations with a limited number of participants since June 19, despite a community quarantine imposed on March 16.
Lawrence Ho reiterated the firm’s “unwavering commitment” to getting a Japan licence and building “the best IR the world has ever seen”.
The term “IR”, or integrated resort, is used in Japan to describe large-scale casino resorts with associated tourism and events facilities.
But Melco Resorts’ boss admitted that “the process in Japan has been substantially delayed and remains complex”.
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