GGRAsia – Melco Resorts expects modest opex increase in 2H

Melco Resorts expects modest opex increase in 2H

Aug 14, 2024 Newsdesk Latest News, Macau, Top of the deck

Casino group Melco Resorts & Entertainment Ltd is likely to see a “modest” increase in its operating expenses (opex) in the second half of this year, said on Tuesday the firm’s management on the group’s second-quarter earnings call.

“Our opex in Macau increased this [second] quarter from approximately US$2.7 million per day to US$2.9 million per day,” said Geoff Davis, the company’s chief financial officer. He said the “majority of the increase was due to an increase in labour costs,” which included a 2.5-percent salary increase for existing staff, as well as “additional hires” during the period.

“We think over the second half of 2024, we might see that drift up to something more like US$3.0 million by year end,” stated Mr Davis.

As competition among Macau operators is increasing, especially for customers in the premium-mass segment, companies have been spending more in promotional and reinvestment activity, according to industry commentators.

But Lawrence Ho Yau Lung, Melco Resorts chairman and chief executive, said his company was focusing on service quality over promotional spending.

“We’re incredibly disciplined in our player reinvestment. We’re laser focused on the best incremental margin per reinvestment dollar,” said Mr Ho during Tuesday’s conference call.

“Naturally, Macau is a very competitive environment, and I think we have chosen to focus on competing on service, on the quality of the resorts and the amenities that we offer,” he added.

Evan Winkler, Melco Resorts president, said on the call that the group was “not elevating” its aggregate level of spending for promotional activities.

Player reinvestment in the Macau market has not accelerated in the three months to June 30, “but it remained high through the second quarter,” observed Mr Winkler.

“I think we continue to believe that for the long term, we’re probably at an elevated period in the history of the market and that it will eventually unwind and come down,” he added. “I don’t necessarily in the near term see it coming down significantly, but I don’t see it going up.”

Money touts, property upgrades

On the call, Mr Ho downplayed concerns over Macau’s intended criminalisation of unlicensed money-changing within a casino setting for the purposes of gambling.

The provision, part of a draft bill being scrutinised in the city’s Legislative Assembly, specifies that unlicensed money-changing would be criminalised when taking place in gaming or non-gaming areas of casino venues.

“The money changers issue, it’s not new. It’s been talked about for over a year now, and it’s not a surprise to us. Of course, it has a bit of an impact in terms of liquidity to players,” stated Mr Ho.

The CEO said the “bigger issue in terms of the softness in June” and partially in July was “more related to the Euro Cup [Euro 2024 football tournament],” and the fact that the “Chinese school holiday started two weeks later” this year.

“August is off to a very good start. We’re very positive and optimistic about the future. I think what we’ve seen so far in August is a more typical summer, and we’re happy heading into the second half of the year,” added Mr Ho.

The executive said the company was progressing well with renovation work both at its flagship City of Dreams in Macau, and its majority-owned Studio City casino resort in Cotai.

“I think by the fourth quarter, hopefully by Golden Week [holiday period next year], [at City of Dreams] we would have probably the nicest VIP slot area that will open at that time,” said Mr Ho. He also said the group was looking at “reactivating” the entrance that directly faces the MGM Cotai and Wynn Palace properties.

At Studio City, recent work includes new slot areas, the opening of a new stadium area, and the widening of a high-limit area at the casino, said Mr Winkler.

“As that property [Studio City] has continued to get better volumes, we’ve actually shifted some table inventory over there,” he added.

Smart tables, revamped show

Melco Resorts currently has “30 smart tables” on the on the floor at Studio City, “which is kind of in line with two of our other competitors in terms of the pace of rollout of the tables,” said Mr Ho on Tuesday.

“I think, contractually, we will get all the tables at Studio City, 215 of them, by the end of October,” he added.

“By the end of March, we’ll get all the tables at City of Dreams as well. I think that’s the current rollout schedule,” noted the CEO.

The group’s CFO said there was a “one month gap” between delivery and the new smart tables becoming operational. “So, roughly November time frame to have those 215 tables live” at Studio City, he added.

The Macau authorities have been encouraging use of smart tables as a way for the city’s industry to manage more effectively casino operations. In that regard, several Macau operators have recently flagged plans to use radio frequency identification (RFID) gaming tables.

On the call, Mr Ho said that The House of Dancing Water – a previously long-running stage show at City of Dreams and that had been a pre-pandemic favourite with Chinese visitors – was likely to relaunch “in the first quarter” of 2025. Previously, the company had mentioned the “end of the year” as the intended target.

“If anything, we want the grand reopening of the House of Dancing Water to be a real spectacle,” mentioned the CEO.

He added: “We’re still hoping for end of the year. But given how it’s a technologically heavy show with a lot of machinery, I think we are having some difficulties with some of the machinery. So, I think potentially it will probably open in the first quarter [of 2025].”