Asian casino developer and operator Melco Resorts and Entertainment Ltd announced on Thursday first-quarter earnings results that beat market consensus, driven by an improvement in the Macau mass-market segment and a reduction in management bonuses. The firm also announced a US$100 million investment on redevelopment work at City of Dreams Macau and Studio City (pictured).
The company – which operates casinos in Macau and Manila – said its first-quarter 2018 revenue rose by 2.8 percent year-on-year to US$1.31 billion. Melco Resorts said such increase was primarily attributable to higher group-wide gross gaming revenue (GGR) in all gaming segments.
The firm said however that the result was partially offset “by higher commissions reported as a reduction in revenue upon the adoption of a new revenue recognition standard issued by the Financial Accounting Standards Board”.
Operating income for the first three months of 2018 was US$221.1 million, up 39.5 percent from the prior-year period. Adjusted property earnings before interest, taxation, depreciation and amortisation (EBITDA) was US$401.8 million in the reporting period, an increase of 13.7 percent from a year earlier, “mainly attributable to the higher contribution from Studio City and Altira Macau,” said the Nasdaq-listed company.
The casino firm reported net income of US$156.6 million for the three months ended March 31, an increase of 38.1 percent from the prior-year period.
Melco Resorts’ board declared on Thursday a quarterly dividend of US$0.045 per ordinary share, equivalent to US$0.135 per American depositary share (ADS). The dividend will be paid on May 23, it said.
“After several challenging quarters we have started seeing encouraging trends at our flagship property City of Dreams [Macau], which delivered over 8 percent sequential mass gaming revenue growth, driving group-wide property EBITDA to an all-time high of US$402 million,” Lawrence Ho Yau Lung, Melco Resorts’ chief executive and chairman, said on a conference call with analysts following the results announcement.
Commenting on the quarterly results, brokerage Sanford C. Bernstein Ltd said Melco Resorts reported first-quarter results “that beat estimates, with EBITDA of US$380 million 12 percent above consensus”.
Melco Resorts’ first-quarter EBITDA benefited from a decrease in corporate expenses amounting to US$6 million, as no management bonus was paid in the first quarter this year.
“Our bonus payments to executive management are discretionary and are designed to reflect overall company performance and aligned senior management with shareholders. Therefore, to reflect our relative underperformance in Macau in 2017, we have reversed our bonus accrual from the fourth quarter of 2017 by approximately US$6 million,” Geoffrey Davis, the firm’s executive vice president and chief financial officer, explained on the conference call.
Melco Resorts announced in January several management changes, including the departure of Macau casino industry veteran Gabriel Hunterton, who served as property president of casino resort City of Dreams in Macau for about a year. David Sisk – previously president of casino resort Studio City – was named president of City of Dreams Macau. Melco Resorts’ CEO said the reason was that the company recognised that at City of Dreams Macau it wasn’t “keeping pace with the market” in terms of the mass and premium mass segments.
For the quarter ended March 31, net revenue at City of Dreams Macau was US$640.5 million compared to US$693.2 million in the first quarter of 2017. The property generated adjusted EBITDA of US$208 million in the first three months of 2018, down 2.6 percent from the prior-year period.
Rolling chip volume at City of Dreams totalled US$11.1 billion for the first quarter of 2018, down 11.9 percent compared to US$12.6 billion in the first quarter of 2017. But mass-market table games drop increased by 11.6 percent year-on-year to US$1.18 billion.
Commenting on the improved mass-market performance at City of Dreams, Mr Sisk said the firm introduced “new marketing programmes at a more tailored and individualised” level for some of its patrons.
“We’ve seen an increase in terms of the players that we used to have; they will come back, [and] they have increased through levels of the play,” the executive said on the conference call.
A new hotel tower – the US$1-billion Morpheus – is due to open in the first half of 2018. The new hotel will feature approximately 780 hotel rooms, suites and villas.
Mr Ho said also on the call that the opening of Morpheus – to be announced “in the next couple of weeks, but certainly in the first half” – will allow City of Dreams to expand its offering. It would also “enable City of Dreams to more aggressively acquire and retain premium gaming patrons, which is key to driving future mass gaming revenue growth,” he added.
The CEO said additionally that the company would be investing US$100 million in aggregate in the next 12 months in order to upgrade the gaming areas and the non-gaming attractions at City of Dreams Macau and Studio City. He gave no details regarding what changes were intended.
For the first quarter of 2018, net revenue at Studio City was US$368.4 million, compared to US$277.9 million in the prior-year period.
Studio City – 60 percent owned by Melco Resorts – generated adjusted EBITDA of US$110.1 million for the first three months of 2018, versus US$67.8 million a year earlier. The year-on-year improvement in adjusted EBITDA was “primarily a result of better performances in all gaming segments,” said Melco Resorts.
Studio City ramp-up
Rolling chip volume at Studio City totalled US$6.6 billion for the first quarter of 2018, compared to US$3.6 billion in the prior-year period. The rolling chip win rate was 2.7 percent in the reporting period versus 2.4 percent in the first quarter of 2017.
Mass market table games drop increased to US$825.2 million, compared with US$656.3 million in the first quarter of 2017.
“Studio City showed strong continued ramp up with rolling chip volume seeing +16 percent quarter-on-quarter (+84 percent year-on-year) and VIP GGR +12 percent quarter-on-quarter (+106 percent year-on-year),” wrote Sanford Bernstein analysts Vitaly Umansky, Zhen Gong and Cathy Huang in a Thursday note.
“Mass table drop was down -3 percent quarter-on-quarter (+26 percent year-on-year), but hold improved, leading to mass table GGR growth of +2 percent quarter-on-quarter (+30 percent year-on-year),” they added.
Altira Macau showed strong gains in both VIP and mass-market revenue, with adjusted EBITDA reaching US$18 million in the first quarter of 2018, compared to US$3.7 million in the prior-year period.
For the quarter ended March 31, net revenue at Altira Macau was US$120.4 million versus US$109.1 million a year earlier. Rolling chip volume at the property totalled US$5.6 billion in the first quarter, up 36.6 percent year-on-year; mass-market table drop amounted to US$139.3 million, an increase of 39.7 percent from the first quarter 2017.
Mr Ho noted that in the Philippines, City of Dreams Manila “delivered another strong quarter” in terms of gaming revenue.
Net revenue at the Philippine casino resort for the quarter ended March 31 was US$142.2 million, compared to US$157.4 million in the first quarter of 2017. City of Dreams Manila generated adjusted EBITDA of US$58.8 million in the first quarter of 2018 compared to US$61.1 million in the prior-year period.
Rolling chip volume totalled US$2.8 billion for the first quarter of 2018 versus US$2.4 billion a year earlier; while mass-market table drop increased to US$188.2 million, compared with US$153.9 million in the first quarter of 2017.
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Studio City International Holdings, which controls Macau's Studio City casino resort