Melco expects slowdown in local expansion project

Melco Resorts & Entertainment is expecting a slowdown for phase two of Studio City’s construction due to Covid-19, citing the low number of construction workers arriving from mainland China.
Phase two of the expansion – which has around $1.35 billion to $1.4 billion (about 11 billion patacas) budgeted – will increase Studio City’s hotel room capacity by approximately 60%.
In addition to the gaming space expansion, phase two will also offer non-gaming attractions, including a cineplex, a water park, fine dining restaurants and meetings and exhibition spaces.
In the company’s fourth quarter conference call with analysts, Lawrence Ho, chairman and CEO of Melco Resorts & Entertainment, said that aside from the delay in construction and completing the expansion, delays are also expected in the approval of licenses required to operate.
“In terms of government approval, as you can expect during this unprecedented time, 100% of the Macau government’s attention is on stopping the spread and curing the virus. So you can expect approvals to slow down as well,” said Ho.
The executive added that the company expects the city’s recovery to take some time.
“Our view is that the situation is going to have a much longer ramp-up period to get the business back to where it was. […] We anticipate Macau to be very, very quiet for quite a long time,” he said.
During the conference call, it was also disclosed that the gaming operator’s expenses were usually about $3 million per day in Macau, with $2 million at City of Dreams, Altira and Mocha, and $1 million at Studio City.
However, through some cost-cutting efforts, the company has reduced expenses to a combined $2.5 million per day.
Ho reported that the 2019 EBITDA was at an all-time high, despite macro headwinds and the events in Hong Kong last year believed to dampen casino prospects.
“We increased our Macau mass table revenues by approximately 17%. We also enjoyed modest growth in VIP revenue, despite the significant market wide VIP decline,” Ho explained.
Gross gaming revenue in Macau fell about 3.4% last year to 292 billion patacas on the back of an exceptionally weak fourth quarter.
Outside of Macau, the CEO said that the company’s project investments in the Philippines, Cyprus and in the Mediterranean were also progressing well.
City of Dreams Manila’s mass table game operations saw strong double-digit growth in the fourth quarter.
“In Cyprus, we continue to ramp up our temporary and satellite casinos with the luck-adjusted EBITDA from Cyprus more than tripling year-over-year to $9 million. Construction of City of Dreams Mediterranean is progressing well, with the opening anticipated [for] around year-end 2021,” said Ho.
“Our strong fourth quarter performance demonstrates the resilience of our EBITDA, with over 90% of our 2019 Macau EBITDA contributed by the non-VIP segment,” he added.
Recently, amid the Covid-19 outbreak, the company scrapped an agreement to buy the second part of a planned 20% stake in Australia’s Crown Resorts, after acquiring its first 10% interest last year.
Ho explained that given the severity of coronavirus and the impact on business, the company had re-evaluated its capital expenditures.
“Given that wasn’t considered part of our core investment, core management assets, I think that’s why that decision was made,” he said. “I think our immediate focus right now is really the stability of our Macau business, the stability of our staff, and the safety of our staff and colleagues in Macau.”