GGRAsia – Melco Resorts 3Q profit up 87 pct, firm gives dividend

Melco Resorts 3Q profit up 87 pct, firm gives dividend

Nov 03, 2017 Newsdesk Latest News, Macau, Philippines, Top of the deck

Asia casino developer and operator Melco Resorts and Entertainment Ltd on Thursday reported a 86.9 percent year-on-year increase in profit for the third quarter of 2017.

The Nasdaq-listed company said net income for the three months ended September 30 was US$115.9 million, or US$0.24 per American depositary share (ADS), compared with US$62.0 million, or US$0.13 per ADS, in the third quarter of 2016.

The firm’s board also declared on Thursday a quarterly dividend of US$0.03 per share (equivalent to US$0.09 per ADS) for the third quarter of 2017. The dividend will be paid on November 30 to shareholders on record on November 14.

Net revenue for the third quarter of 2017 was approximately US$1.38 billion, representing a year-on-year increase of nearly 19.5 percent. The company said in a press release that the improved performance “was primarily attributable to higher rolling chip revenues at City of Dreams [Macau] and the commencement of rolling chip operations at Studio City in November 2016.”

Operating income for the period was US$192.7 million, compared with operating income of US$108.9 million in the third quarter of 2016, up by 77.0 percent.

Adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) for the three months ended September 30 was US$400.2 million, up by 38.4 percent from the prior-year period. The figure was an “all-time record” for Melco Resorts, the firm stated.

“While Melco Resorts reported third quarter 2017 results that beat our estimates and consensus, the beat was largely driven by high hold in VIP and bad debt reversal,” brokerage Sanford C. Bernstein Ltd said in a note commenting on the casino operator’s results.

“Hold-adjusted property EBITDA (including high VIP hold at City of Dreams Macau and Studio City) would have been US$373 million, but still above our estimate and consensus,” wrote analysts Vitaly Umansky, Zhen Gong and Cathy Huang.

Strong momentum

“Gaming revenue growth momentum in Macau has remained strong, with October 2017 marking the fifteenth consecutive month of positive year-over-year growth,” company chairman and chief executive Lawrence Ho Yau Lung said in comments included in the release.

“Looking out, we believe there are multiple drivers of long term growth for Macau, powered by ongoing expansion of the increasingly consumption driven middle-to-upper class in China, improving accessibility into and mobility around Macau, and the continuing build-out of non-gaming amenities, which we believe support an increase in the number of tourists and length of stay,” he added.

Mr Ho said the US$1-billion Morpheus hotel tower at the City of Dreams Macau property remained on budget and on track to open in the first half of 2018. The new hotel will feature approximately 780 hotel rooms, suites and villas.

“When Morpheus opens, we will also commence the rebranding and redevelopment of The Count:Down,” Mr Ho was quoted as saying in the release.

The Count:Down is the former Hard Rock Hotel at City of Dreams Macau. Melco Resorts announced in April it was dropping the Hard Rock brand from its City of Dreams Macau. It added at the time that the hotel would be operated under the name ‘The Count:Down’ “from July 2017 until March 31, 2018″ and would get a new branding after that.

Mr Ho also said that Melco Resorts would continue to “refine” product offerings at Macau’s Studio City casino resort (pictured) “with a range of extensive property upgrades planned over the next 12 months, including the planned redevelopment of the House of Magic and enhancements in the accessibility to the property.”

The last performance at The House of Magic was held on October 8 and the performance venue was closed the next day.

The House of Magic attraction was designed by American magician Franz Harary. It was quartered in a purpose-built, 300-seat theatre, complemented by several smaller venues that hosted performances by other entertainers.

A food court on the ground floor of Studio City – previously branded as “Cosmos Food Station” – has also closed. A Melco Resorts spokesperson told GGRAsia in October that the food court would be replaced with “new facilities”. The nature of the new facilities and the launch time would be announced later, the person added at the time.

Studio City International Holdings Ltd – the entity that controls the Studio City casino resort – took in August the first step toward a potential initial public offering (IPO) in the United States, by submitting draft registration documents to the U.S. Securities and Exchange Commission.

Melco Resorts has a stake of 60 percent in Studio City International Holdings. The remaining 40 percent is held by New Cotai Holdings LLC, an entity controlled by U.S.-based investment firms Silver Point Capital LP and Oaktree Capital Management LP.

Melco Resorts’ executives did not comment on the IPO process or rationale in Thursday’s conference call, citing regulatory constraints.

For the third quarter of 2017, net revenue at Studio City was US$384.5 million, up by 67.5 percent in year-on-year terms. The property generated adjusted EBITDA of US$95.6 million compared with adjusted EBITDA of US$52.7 million in the prior-year period.

Rolling chip volume totaled US$5.1 billion for the third quarter of 2017, while the rolling chip win rate was 4.0 percent for the period. Mass market table games drop increased to US$747.1 million compared to US$657.6 million in the third quarter of 2016.

Total non-gaming revenue at Studio City in the third quarter was US$51.9 million, down 11.3 percent from a year earlier.

No plans to sell Altira

On a conference call with analysts following the results announcement, Mr Ho also stated that Melco Resorts was satisfied with the performance of casino hotel Altira Macau and had no plans to dispose of it.

“There is always this notion in the market that Altira is on the selling block. There is absolutely no truth to it whatsoever,” Mr Ho said. “Altira is a phenomenal property that is critical to our portfolio of assets,” he added.

The Sanford Bernstein team said it was “skeptical” of any material improvement at Altira Macau. “Some of the 127 tables at the property would likely be put to better use elsewhere in the future (City of Dreams Macau when Morpheus opens and/or Studio City),” the brokerage analysts added.

For the quarter ended September 30, net revenue at Altira Macau was US$89.3 million compared to US$128.8 million in the prior-year period. Altira Macau generated negative adjusted EBITDA in the reporting period, with the property’s performance impacted by a decrease in casino revenues, said the firm.

Mr Ho also again talked up the firm’s prospects of winning a Japan casino licence, but no specific new information was given on potential progress in that market.

“We believe that our track record of delivering high quality and unique integrated resorts, our market-leading social safeguard systems, and commitment to being an ideal partner to local governments and communities alike places us in a strong position to compete for a license in this exciting market,” said Melco Resorts’ CEO.

Last month, Melco Resorts announced it had become an official partner of Osaka-Kansai Japan Expo 2025. A number of investment analysts covering the casino industry have identified the port city of Osaka as a likely location for a casino resort.

Mr Ho noted that in the Philippines, “City of Dreams Manila continues to enjoy strong year-on-year growth across all gaming segments, which enabled the property to deliver over 27 percent year-over-year growth in adjusted property EBITDA, despite new supply in the Philippines.”

Net revenue at the Philippine casino resort for the quarter ended September 30 was US$148.2 million, up by 13.1 percent in year-on-year terms. City of Dreams Manila generated adjusted EBITDA of US$57.3 million in the third quarter of 2017 compared to US$45.0 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$3.0 billion for the third quarter of 2017 versus US$1.6 billion in the third quarter of 2016. Mass-market table games drop increased to US$174.1 million compared with US$146.8 million in the prior-year period.

Total non-gaming revenue at City of Dreams Manila in the third quarter of 2017 was US$29.2 million, a year-on-year increase of 11.0 percent.