City of Dreams Manila is Melco’s bright spot: Nomura

City of Dreams Manila is Melco’s bright spot: Nomura

City of Dreams Manila remains one of the financial nutrients that could sustain Melco Crown Entertainment as its Macau gambling arm continues to recover.

City of Dreams Manila is Melco’s bright spot: NomuraIn a note last Wednesday, Japan-based credit analyst Nomura expressed optimism on City of Dream’s Manila due to the country’s resilient junket and VIP demand. The firm expects better fourth quarter 2016 data coming from the City of Dreams, it said.

Nomura analysts Harry C. Curtis, Daniel Adam and Brian H. Dobson all predicted that overall demand in the Manila gaming market “may continue to increase more than the supply growth.”

“Despite political pressure on Chinese nationals and increased violence related to the Philippine government’s crackdown on drug traffickers, we estimate market revenues grew in excess of 40 percent in fourth quarter 2016,” the credit-debt watcher pointed out.

Data from the Philippine Amusement and Gaming Corporation (PAGCOR) showed that the casino businesses, both private and government-run, posted P34.168 billion (US$686.4 million) revenue in 2016, which compared favorably against the P30.411 billion reported in the same period in 2015.

The country’s gaming industry includes three main developments: City of Dreams Manila, run by a subsidiary of Melco Crown Entertainment Ltd.; Resorts World Manila, owned and operated by Travellers International Hotel Group Inc., a venture between Philippine-based Alliance Global Group Inc and Genting Hong Kong Ltd; and Solaire Resort and Casino, controlled by Bloomberry Resorts Corp.

The fourth—the $2-billion Okada Manila integrated casino resort of Japanese gaming tycoon Kazuo Okada—is set to open its doors formally next month.

The Nomura analysts said that while they expect “upside to consensus estimates” in the Philippines, they “remain cautious” about potential competitive pressures from Okada Manila, which had a soft opening on December 21.

As for Melco’s overall operations, Nomura sees less downside risks due to stabilization of Macau’s VIP market and a stronger-than-expected GGR growth in Manila.

“Our latest channel checks suggest fourth quarter property EBITDA [earnings before interest, taxation, depreciation and amortisation] at City of Dreams Manila could be at least US$10 million above the Street’s US$32 million estimate,” said the Nomura analysts.

“The positive surprise has been strength in VIP/junket, where we estimate Melco Crown grew revenues more than three times year-on-year, albeit off a relatively small VIP base (VIP GGR was US$27.3 million in fourth quarter 2015),” they added.