GGRAsia – Melco Resorts’ 1Q earnings beat market consensus

Melco Resorts’ 1Q earnings beat market consensus

May 05, 2017 Newsdesk Latest News, Macau, Philippines, Top of the deck

Asia casino developer and operator Melco Resorts and Entertainment Ltd announced on Thursday first-quarter earnings results that beat market consensus.

The company said its first-quarter 2017 net profit – under U.S. generally accepted accounting principles (U.S. GAAP) – nearly tripled from the prior-year period to US$113.4 million, compared to US$39.8 million in the first quarter of 2016.

Net revenue for the first three months of 2017 was approximately US$1.28 billion, up 15.7 percent year-on-year. Operating income for the three months to March 31 rose by 141 percent, to US$158.5 million.

Adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) were US$353.3 million for the first quarter of 2017, an increase of 42 percent from a year earlier, “driven by expanding revenues across both Macau and the Philippines,” said the Nasdaq-listed company.

The year-on-year improvement in results “was mainly attributable to better performance in group-wide rolling chip and mass market table games segments,” said Melco Resorts.

“Our group-wide property EBITDA margin was almost 28 percent in the first quarter of 2017, the highest margin we have delivered since the first quarter of 2014,” Lawrence Ho Yau Lung, Melco Resorts’ chief executive and chairman, said on a conference call with analysts following the results announcement.

Commenting on the results, Wells Fargo Securities LLC analysts Cameron McKnight and Robert Shore said: “Melco Resorts reported an 8 percent beat [on Macau EBITDA] in the first quarter, with much lower operating expenses from efficiency measures and a strong increase in VIP market share. The result was reasonably clean, with no [casino] hold issues in the quarter.”

Melco Resorts was until early April branded Melco Crown Entertainment Ltd. A rebranding took place after Melco International Development Ltd – a firm controlled by Mr Ho – acquired a majority stake in the legacy entity Melco Crown from its long-standing partner, Australian casino operator Crown Resorts Ltd. Melco International now controls 51.3 percent of Melco Resorts.

Melco Resorts’ board also declared on Thursday a quarterly dividend of US$0.03 per share (equivalent to US$0.09 per American depositary share) for the first quarter of 2017. The dividend will be paid on May 31 to shareholders on record on May 16.

VIP strength

For the quarter ended March 31, net revenue at City of Dreams Macau was US$693.2 million compared to US$678.6 million in the first quarter of 2016. The property generated adjusted EBITDA of US$213.5 million in the first three months of 2017, up 4 percent from the prior-year period.

Rolling chip volume at City of Dreams totalled US$12.6 billion for the first quarter of 2017, up 28.6 percent year-on-year compared to US$9.8 billion in the first quarter of 2016. Mass-market table games drop decreased to approximately US$1.06 billion compared with US$1.07 billion in the first quarter of 2016.

City of Dreams Macau “enjoyed a largely Cotai-specific resurgence in VIP volume,” said analyst Christopher Jones of the Buckingham Research Group Inc in a Thursday note. But mass market performance “remains under pressure as City of Dreams Macau (and Melco Resorts overall) underperformed the market growth rate,” he added.

“We expect City of Dreams Macau’s full-year 2017 performance to be similar to its first-quarter 2017 performance,” said Mr Jones.

For the first quarter of 2017, net revenue at Studio City was US$277.9 million, compared to US$178.7 million in the first quarter of 2016.

Studio City – 60 percent owned by Melco Resorts – generated adjusted EBITDA of US$67.8 million for the first three months of 2017, versus US$22.1 million in the prior-year period. The year-on-year improvement in adjusted EBITDA was “primarily a result of commencement of rolling chip operations in November 2016 and better performance in mass market table games segment,” said Melco Resorts.

The property started operations in October 2015 – in Macau’s Cotai district – without VIP gaming. The casino operator however decided to introduce rolling chip operations at Studio City in November last year, including both junket and premium direct VIP offerings.

Rolling chip volume at Studio City totalled US$3.6 billion for the first quarter of 2017, while mass market table games drop increased to US$656.3 million, compared with US$547.0 million in the first quarter of 2016.

Grant Govertsen of Union Gaming Securities Asia Ltd said in a Thursday memo that the first quarter of 2017 “represented a breakout quarter” for Studio City, “which we model to continually improve throughout 2017 on the heels of additional cost saves/efficiencies, as well as steadily growing revenues”.

“We do, however, anticipate a modest sequential decline in VIP volume in the second quarter, given the boost from first-quarter special events at the property,” added Mr Govertsen.

Melco Resorts’ management additionally said it would be adding one more junket operator at Studio City later in May.

Commenting on the operating environment and the growth in VIP volume, Mr Ho said on the conference call: “I think overall the [Macau] market has recovered. I think it’s really a function of the customers coming back, spending more and, at the same time, our junket partners feeling better about the market and being more flexible in terms of the credit they are extending.”

Philippines beat

Mr Ho noted that in the Philippines, “City of Dreams Manila delivered a fifth quarter of record adjusted property EBITDA, as a result of improvements across all gaming segments”.

Net revenue at the Philippine casino resort for the quarter ended March 31 was US$157.4 million, compared to US$95.4 million in the first quarter of 2016. City of Dreams Manila generated adjusted EBITDA of US$61.1 million in the first quarter of 2017 compared to US$28.6 million in the comparable period of 2016.

“The year-on-year improvement in adjusted EBITDA was primarily a result of increased casino revenues,” Melco Resorts stated.

Rolling chip volume at City of Dreams Manila totalled US$2.4 billion for the first quarter of 2017 versus US$1.5 billion in the first quarter of 2016. Mass-market table games drop increased to US$153.9 million compared with US$120.4 million in the prior-year period.

“City of Dreams Manila has shown stronger than expected performance with more junket presence driving VIP volumes (and high hold again this quarter at 3.4 percent) coupled with strong mass,” said analysts Vitaly Umansky, Zhen Gong and Yang Xie of brokerage Sanford C. Bernstein Ltd.

They added: “Once fully-ramped up, the property [City of Dreams Manila] should generate better than fair share results on the strength of product positioning and management expertise. Further, cross-selling opportunities exist between Melco Resorts’ Macau and Philippines operations which we believe the company will continue to exploit (as evident by the VIP junket driven volume growth).”