CASINO

Melco Crown profit plunges as CEO laments “very, very weak” Macau market

TAGs: Macau, Melco Crown Entertainment, Studio City, taiwan

melco-crown-entertainment-studio-city-macauCasino operator Melco Crown Entertainment (MCE) profit plunged by three-quarters in the third quarter of 2015 but CEO Lawrence Ho believes the worst is over for his company and the overall Macau casino market.

For the three months ending Sept. 30, MCE’s revenue fell 16% to $945.7m, adjusted earnings fell 22% to $237.3m and net income fell 75% to $33.2m. MCE pinned much of the profit decline on costs associated with getting its newly opened $2.3b Studio City property ready for public inspection.

Revenue at City of Dreams, MCE’s original flagship property in Macau, was down 27% to $665m as VIP gambling turnover fell 46%. Mass market table drop was down a more modest 11% while gaming machine handle fell 22%. Non-gaming revenue – the profit potential of which Ho has rubbished – fell 10% to $66.8m.

Altira Macau’s revenue fell 12.5% to $140m as VIP turnover fell 28% and mass table drop fell 14%. The Mocha Clubs slots parlors fared better, with revenue down 6% to $36m despite operating 100 fewer machines than the previous quarter.

City of Dreams Manila wasn’t open in Q3 2014, so there are no year-on-year comparisons to make. But the Philippines property reported revenue of $91.7m, up from $75m in Q2, while earnings doubled to $24.4m. VIP turnover more than doubled to $1.2b while mass table drop was flat at $117m and gaming machine handle nudged up slightly to $508m. Non-gaming revenue dipped a couple million to $26.4m.

STUDIO CITY FORECASTS
While Studio City opened too late to contribute to the Q3 figures, Deutsche Bank analysts estimated that the property generated $6m in gaming revenue in its first five days of operation. The analysts suggested that this was only about half what the property should have generated, given its allocation of 200 new gaming tables, although they acknowledged that five days was insufficient to draw any concrete conclusions.

On the earnings call with analysts, Ho said Studio City’s 1,600 hotel rooms had enjoyed 90% occupancy over its first eight days of operation. The occupancy rate for November is already in the mid-eighties while December is close to 70%.

MACAU GOV’T WAKES UP TO REALITY
Ho said he believes the Macau government’s policy outlook is “very different from say early last year or even beginning of this year” due to Ho’s belief that the government has finally “realized that the market is actually very, very weak and not in the shape that they’ve seen before.”

Referencing Beijing’s continued crackdown on corruption, Ho believes “the fear factor and the sheer amount of arrests or implications in China has been much larger than expected.” Ho reiterated his previous statements that Macau’s VIP sector “has been permanently and structurally changed” and will “never go back to the heydays where it was bubble like.”

While Ho believes the VIP market will continue to “have some challenges” in 2016, he believes the mass market has stabilized and “should see some reasonable growth, hopefully.” Without getting into specifics, Ho hopes MCE’s overall gross gaming revenue will be “flattish or up a little” next year.

TAIWAN COURT VICTORY
MCE offered an update on the legal case against its Taiwanese subsidiary, which was indicted in August 2014 for alleged violations of banking and foreign exchange laws. On Thursday, MCE said the Court of First Instance had rendered a not guilty verdict on all charges in early October.

At the time the verdict was reached, the Court ordered the lifting of the freeze the Taiwanese prosecutor had placed on an MCE bank account containing around $102m. However, MCE noted that while the prosecutor didn’t oppose the Unfreeze Order, the prosecutor has filed a notice of appeal of the not guilty verdict and could apply for a new freeze order at any time.

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