Neptune US$107-mln loss fresh worry for Macau VIP
Neptune Group Ltd, a Hong Kong-listed investor in the Macau VIP gambling sector, on Friday announced a net loss of HKD828 million (US$106.8 million) for the year ended June 30, 2015. It made a profit of HKD148.8 million in the prior-year period.
The company blamed the lacklustre fiscal 2014-15 performance on the “spectacular slowdown in the Macau VIP gaming industry as a whole”. Neptune Group stated it believed there would be no rebound in the sector within the next 12 months.
The firm added in its unaudited annual report, filed with the Hong Kong stock exchange: “The group may not… continue its presence in [the] Macau VIP gaming industry… if this situation doesn’t correct itself in coming years.”
Commenting on the announcement, Union Gaming Securities Asia Ltd analyst Grant Govertsen said: “While we do not believe Neptune Group is leaving the Macau scene we do believe that more junket closures are likely and that liquidity could increasingly become a concern that could drive further downside to the VIP story”.
Mr Govertsen stated that he suspected that the concerns expressed by Neptune Group applied in essence to all junket operators in Macau, and in the short-term particularly to small junkets. He added that casino operators Galaxy Entertainment Group Ltd, SJM Holdings Ltd and Wynn Macau Ltd would likely be hit the hardest by an even weaker VIP segment, judged by their exposure to the VIP segment in the Macau market.
The Macau government produces official figures on the split between casino gross gaming revenue (GGR) for VIP baccarat – the game of choice for Chinese high rollers – and the mass market segment, on a quarterly basis. The data for the second quarter showed VIP baccarat GGR fell 42.2 percent year-on-year, while mass-market GGR, including slots and electronic table games, fell by 30.2 percent year-on-year.
‘Unsettling challenges’
Neptune Group said its gaming revenue fell by 33 percent to HKD473.6 million in the 12 months ended June 30.
“We face unsettling challenges [in order] to consider how to sustain our business under such difficult circumstances,” it warned.
The firm’s results for the year included an impairment loss on intangible assets of HKD875.2 million regarding investments in several VIP rooms.
Neptune Group’s filing included “very pessimistic market commentary,” analyst Mr Govertsen noted.
The junket firm stated: “Possibly if tighter junket regulations are adopted, we think further negative impact on VIP gaming volumes would be inevitable, driven by the likely accelerating junket room closures.”
Macau’s casino regulator, the Gaming Inspection and Coordination Bureau, last week announced it would revise regulations related to junket operations in Macau. The revision will focus on implementing new requirements regarding the capital and shareholding structure of junket operators, introducing tighter rules on accounting and auditing, said the regulator.
The announcement followed an alleged fraud that rocked the Macau VIP gambling segment a fortnight ago. Macau junket operator Dore Entertainment Co Ltd, which operates VIP facilities at Wynn Macau casino hotel, announced it had been a victim of internal fraud by a former employee.
In its Friday filing, Neptune Group cautioned against tighter capital regulations. It noted its liquidity position was already “extremely vulnerable”.
The firm stated: “With limited cash on hand and long outstanding unsettled debts… at the risk of total[ly being] written off, as well as [limited] available banking facilities, the group’s liquidity position is extremely vulnerable [if required] to satisfy any new capital commitments and working capital requirements.”
Union Gaming’s Mr Govertsen said in his note that even before the Dore Entertainment case surfaced, Macau’s junket system had already been under “continuous assault” for the past 18 months.
He added: “We would attribute several legs down in GGR to anti-corruption, with further weakness driven by several other factors including: a slowdown in the broader Chinese economy, real estate softening, attacks on the shadow banking system, the rise and crash of the Shanghai [stock] exchange, the devaluation of the Chinese renminbi [currency], increased scrutiny of the junket system, etc.”
The Macau-based analyst noted it was hard to assess the real size of Neptune Group’s operations in the city. “We believe that the listed company has historically operated only about one third of the total Neptune table inventory (when including the privately held ‘Neptune GD Group’),” Mr Govertsen said.
According to Union Gaming’s estimates, the overall organisation “probably accounted for 15 percent to 20 percent of total junket volume in Macau” at its peak, second only to Suncity Group. That would mean the listed company would account for around 5 percent of total junket volume, Mr Govertsen added.
Neptune Group stated in its annual report its operations involved a total of 73 tables, representing a reduction from the previous year. The only Macau casino concessionaires not in partnership with Neptune for VIP operations are MGM China Holdings Ltd and Wynn Macau Ltd.
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