Gaming | Melco Crown profit falls 22 percent

The Studio City casino resort stands behind an elevated track for the Macau LRT system, that is currently under construction

Melco Crown Entertainment Ltd., which last week opened the USD3.2 billion Studio City casino resort in Macau, reported third-quarter profit fell 22 percent as China’s economic slowdown and its anti-corruption crackdown caused a slump in the world’s largest gambling hub.
Adjusted property earnings before interest, taxes, depreciation and amortization fell to USD237.3 million from $305.7 million a year earlier, Melco said in a statement yesterday. That compares with the $233 million median estimate of five analysts surveyed by Bloomberg. Revenue declined 16 percent to $945.7 million, the Hong Kong-based company said in a U.S. filing.
The deterioration of Macau’s gambling market is being driven by both high-stakes VIPs and mass-market gamblers, Sophie Lin, a Hong Kong-based analyst at Standard & Poor’s Ratings, said before the results. “The opening of Studio City will support Melco’s good competitive position in Macau and temper the risks from tough operation conditions, as it targets right at the less volatile mass market,” she said.
Macau is experiencing its worst downturn on record, with gross gaming revenue at the city’s casinos falling for the 17th straight month in October. The high rollers’ contribution to the city’s gaming revenue fell by 38 percent in the three quarter of 2015 while mass market gaming fell by 30 percent, according to Bloomberg Intelligence.
Melco shares fell as much as 4 percent to $18.60 in New York trading, the biggest intraday decline since Oct. 26. The shares have slumped 25 percent so far this year.
“We’ve seen the worst in Macau, it’s really a matter when the real recovery starts. I think it’s a bit early to speculate,” Lawrence Ho, Melco Crown’s billionaire chairman, said in a briefing held after the results. The VIP gambling segment will be challenging next year, while the mass market has stabilized “and should see some reasonable growth hopefully,” he said.
To reduce its reliance on gambling, Melco Crown opened the Hollywood-themed Studio City on Oct. 27, touting non-gaming facilities such a Batman ride to attract families and tourists.
China’s President Xi Jinping in last December ordered the city to diversify its economy from gambling, on which it relies for about 80 percent of revenue. The Macau government said last month the city has the power to enact policies aimed at broadening the economy and that casino operators have to comply with its rules.
Casino operators have started to shift their focus to mass segment in response, building shops and tourist attractions. Studio City includes non-gaming facilities such as the Batman ride, and a magic show. Galaxy Entertainment Group Ltd. opened two projects in May, featuring a 3,000-seat theater, while Sands China Ltd.’s $2.7 billion Parisian Macao will showcase a replica Eiffel Tower when it opens next year.
“Studio City is the biggest wild card for the industry and for Melco,” Morgan Stanley analysts led by Praveen K Choudhary wrote in a note. The project will either prove the adage “supply drives demand” or it will result in competition, promotion and low margin, according to the note. Daniela Wei, Bloomberg