Casino gross gaming revenue (GGR) for the Philippines – driven mainly by new properties in Manila – is likely to grow by 8 percent year-on-year in 2016, not the market consensus figure of 21 percent, says a report from Morgan Stanley Research.
“We forecast GGR of US$1.6 billion in 2016 (+8 percent year-on-year), mainly driven by the ramp-up of City of Dreams Manila,” wrote analysts Xin Jin Ling, Xiangyu Hu and Praveen Choudhary. They were referring to a casino resort property in the Philippines capital that officially opened in February. It has been part developed and is wholly managed by Melco Crown (Philippines) Resorts Corp, a subsidiary of Melco Crown Entertainment Ltd.
“If we exclude City of Dreams Manila, ‘same-store sales growth’ for Resorts World Manila and Solaire would only grow 3 percent,” added the Morgan Stanley team, referring respectively to a property developed by Travellers International Hotel Group Inc; and to Solaire Resort and Casino, developed by Bloomberry Resorts Corp.
“We think that consensus expectation of 21 percent growth [market wide] in GGR to US$2.2 billion for 2016 is too aggressive,” stated Morgan Stanley in its Tuesday report.
The institution’s previous estimate for market GGR growth in 2016 had already been 23 percent below consensus, at US$1.7 billion.
“Our reduction is mainly due to lower volume growth in the VIP segment. VIP roll/table/day has been on a downtrend and although this may be due to the opening of City of Dreams Manila and capacity expansion, we do not expect a recovery in table yields in the near-term, as demand from overseas VIP remains weak and junket ramp-up takes longer than expected,” wrote the Morgan Stanley analysts.
Brokerage Sanford C. Bernstein Ltd in Hong Kong had said in a note in August it believed the authorities Macau and China might “exert pressure on junket operations that aim to lure gamblers into the regional markets”.
Morgan Stanley also thinks much of the VIP business in the new Manila casinos has been via junkets from Macau bringing in Chinese players.
“For Philippines casinos we expect an increase in doubtful debts relating to direct VIP/advances to junkets given the casinos’ reliance on Macau junkets,” said Morgan Stanley. It was referring to recent concerns about the cash liquidity of Chinese gamblers in the face of an economic slowing in China and an anti-graft campaign there; and to the fact that – traditionally – Chinese players of high stakes table games use credit to gamble and in return enter so-called ‘rolling chip’ or ‘dead chip’ programmes, designed to smooth volatilities in how much of the money staked at the tables the casinos get to ‘hold’.
Bloomberry Resorts reported an 898 percent year-on-year increase in allowance for “doubtful accounts” in its first half unaudited earnings. The aggregate of such receivables – mostly from casino operations – rose to approximately PHP964.4 million (US$21 million) from approximately PHP96.6 million in the prior-year period.
Bloomberry Resorts made a PHP1.81-billion provision in the first half for PHP4.69-billion of receivables, Bloomberg News reported last week following an interview with Enrique Razon, chairman of Bloomberry Resorts.
Travellers International said in its first half results that promotional allowances – which include revenue share with junket operators – reached PHP1.68 billion, accounting for 13.4 percent of total gaming revenue, up from 6.3 percent in the same period last year.
As of Thursday’s close on the Philippine Stock Exchange, Bloomberry Resorts’ shares were down 62 percent from their 52-week high point, according to Reuters data. Shares for Travellers International were down 64 percent from their 52-week high point, while those of Melco Crown Philippines were down 74 percent from their 52-week high, according to Reuters.
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Alex Poon and Praveen Choudhary
Analysts at Morgan Stanley