GGRAsia – Studio City better, City of Dreams Macau softer: MPEL

Studio City better, City of Dreams Macau softer: MPEL

Nov 04, 2016 Newsdesk Latest News, Macau, Philippines, Top of the deck

Asian casino developer Melco Crown Entertainment Ltd said its third-quarter profit nearly doubled year-on-year. Such profit was US$62.0 million, an increase of 86.7 percent on the US$33.2 million recorded in the prior-year quarter, measured on a U.S. generally accepted accounting principles basis (GAAP).

The group declared a quarterly dividend of US$0.0126 per share, equivalent to US$0.0378 per American Depositary Share. It is payable on or about November 30.

Melco Crown said the quarterly trading improvement had been bolstered by improved performance at Studio City (pictured), a 60 percent-owned property in Cotai, Macau, and at City of Dreams Manila, a casino resort in the Philippines that the group operates. Investment analysts had said previously that Studio City had been slow to ramp up its business after launching in October last year.

Group net revenue for the third quarter of 2016 was US$1.15 billion, representing an increase of approximately 22 percent from US$945.7 million for the comparable period in 2015.

The firm said an increase in net revenue was “primarily attributable to the net revenue generated by Studio City… and the increase in casino revenues at City of Dreams Manila, partially offset by lower casino revenues at City of Dreams in Macau and Altira Macau”.

Analysts noted that City of Dreams Macau’s relative underperformance in the third quarter highlighted competitive pressures it faced in a part of Cotai where it is surrounded by new projects.

Christopher Jones of the Buckingham Research Group Inc stated: “While the EBITDA [earnings before interest, taxation, depreciation and amortisation] underperformance at CoD Macau was driven by weak VIP hold, a 9 percent decline in mass market suggests the asset is facing competitive pressures as new supply opens around it. Looking forward, we expect these competitive pressures to grow, as Wynn Palace ramps, followed by the opening of MGM Cotai in the second quarter of 2017.”

Vitaly Umansky, Zhen Gong and Yang Xie at brokerage Sanford C. Bernstein Ltd noted: “City of Dreams [Macau] performed weaker than expected, partly due to low VIP hold, and slightly weaker than expected mass (although mass tables [revenues] were still up 3 percent quarter-on-quarter).”

“Studio City continues to ramp up with property EBITDA up 115 percent quarter-on-quarter to US$53 million as some reworking at the property has benefited ramp (mass tables and slots up 24 percent and 31 percent quarter-on-quarter, respectively),” added the Sanford Bernstein team.

Studio City ramp-up

Melco Crown noted in its quarterly results that “the ramp-up of Studio City operations must be significantly accelerated by March 31, 2017,” in order to meet financial condition requirements under the US$1.4-billion Studio City loan agreement.

The firm added however that “the company is not a guarantor under the Studio City loan agreement or the 8.50 percent senior notes due 2020 issued by Studio City Finance Ltd”.

Melco Crown further stated in its quarterly results that in October this year it had filed an application with the Macau government requesting an extension of the development period under Studio City’s land concession contract. It added the application was “currently under review by the Macau government”.

Lawrence Ho Yau Lung, chairman and chief executive of Melco Crown, said in a press release accompanying the earnings results: “We delivered a 22 percent year-over-year increase in adjusted [group] property EBITDA during the third quarter of 2016, driven by greater contributions from Studio City and City of Dreams Manila.”

He added: “Studio City… delivered a sequential increase of over 24 percent in mass table gross gaming revenues and over 110 percent in adjusted property EBITDA.”

Melco Crown told GGRAsia in an email on Tuesday that the Studio City property – which launched without any VIP gambling operations – would commence high roller play on November 5.

“As [casino gross gaming revenue] trends stabilise in Macau, Melco Crown Entertainment is positioned to benefit from Macau’s evolution into a mass-focused, multi-day stay destination,” Mr Ho nonetheless noted in the quarterly earnings statement.

The number of guests staying at Macau hotels and guesthouses in September increased by 20.2 percent year-on-year to nearly 1.03 million, according to data released on Monday by the city’s Statistics and Census Service.

City of Dreams Macau

Mr Ho expressed optimism about group operations in the Manila casino resort, a property that opened in February 2015.

“City of Dreams Manila delivered improvements in all gaming segments which, together with our company-wide focus on managing reinvestment costs and other operating expenses, resulted in an increase in adjusted property EBITDA of approximately 85 percent on a year-over-year basis. City of Dreams Manila provides us with a diversified earnings stream which complements our operations in Macau,” stated the Melco Crown chairman.

On a U.S. GAAP basis, group operating income for the third quarter of 2016 was US$108.9 million, compared with operating income of US$34.1 million in the third quarter of 2015, representing an increase of 220 percent.

Adjusted group property EBITDA on a non-GAAP basis was US$289.2 million for the third quarter of 2016, as compared to adjusted property EBITDA of US$237.3 million in the third quarter of 2015, representing an increase of 22 percent. The year-on-year improvement in that figure was mainly attributable to the contribution from Studio City and City of Dreams Manila, partially offset by lower contribution from City of Dreams in Macau, said the group.

At the latter property, rolling chip volume totalled US$10.6 billion for the third quarter of 2016 versus US$9.3 billion in the third quarter of 2015. The rolling chip win rate was 2.6 percent in the third quarter of 2016 versus 2.9 percent in the prior-year period.

Mass-market table games drop at City of Dreams Macau decreased to approximately US$1.10 billion, compared with US$1.19 billion in the third quarter of 2015. The mass-market table games hold percentage at City of Dreams Macau was 34.5 percent in the third quarter of 2016, compared to 35.1 percent in the third quarter of 2015.

Gaming machine handle for the third quarter of 2016 was US$1.00 billion, compared with US$1.21 billion in the third quarter of 2015.

Total non-gaming revenue at City of Dreams Macau in the third quarter of 2016 was US$75.6 million, compared with US$66.8 million in the third quarter of 2015.

Studio City, CoD Manila

Third-quarter net revenue at Studio City was US$229.5 million. Studio City generated adjusted EBITDA of US$52.7 million in the period.

Mass-market table games drop was US$657.6 million and the mass-market table games hold percentage was 25.5 percent in the third quarter of 2016.

Gaming machine handle was US$587.9 million and the gaming machine win rate was 3.9 percent in the third quarter of 2016.

Total non-gaming revenue at Studio City in the third quarter of 2016 was US$58.5 million.

For the quarter ended September 30, 2016, net revenue at City of Dreams Manila was US$131.0 million compared to US$91.7 million in the third quarter of 2015.

City of Dreams Manila generated adjusted EBITDA of US$45.0 million in the third quarter of 2016 compared to US$24.4 million in the comparable period of 2015. The year-on-year improvement in adjusted EBITDA was primarily a result of increased casino revenues.