But Studio City may fail first financial test
Analysts from Sanford C. Bernstein say Macau could see a healthy rise in gross gaming revenues for the month of September, according to a report in the Asia Gaming Brief.
The brokerage says an ADR of MOP up to 560 million ($US70 million) for the last week of the month would put September GGR up between 4 percent and 5 percent year-on-year.
“Due to a ramp up of new projects and better than expected VIP, September GGR should still be better than previous years compared to a five-year historic average month-on-month decrease of minus 6 percent,” said Bernstein, adding that “slowing VIP volume” accounted for a weaker second half “after the larger than expected boost in VIP volumes following the Wynn Palace opening.”
Wells Fargo, meanwhile, said VIP was “driving the recent pop in revenues—not an increase in mass and premium-mass traffic and play.
“Our checks suggest September mass-market revenues are pacing down by mid-to-high single digits in line with regular seasonality. August revenues were better than expected, picking up in the last five days of the month, and some channel checks suggest September started strongly.”
VIP rooms at the recently opened Wynn Palace and Parisian Macao “have seen additional credit extended to junkets, incenting play,” Wells Fargo added. “VIP business is inherently volatile week-to-week and month-to-month, especially on today’s much smaller customer base.”
Buckingham Research agreed. “We believe the overall market is benefiting from recent new openings in the market, with especially strong VIP demand at Wynn Palace and improving mass-market performance at the Parisian. There could be an upside to these expectations as they continue to ramp up, offsetting what is traditionally a slowdown in volume in late September.”
But Wynn Resorts, which opened the $2 billion Palace last month, saw its shares drop after market analyst Nomura said mass-market gaming volumes were “lighter than expected.” As for the Parisian last week, Nomura said GGR was down 14 percent in the final week of the month, suggesting that the Sands China resort may have boosted “tourist volumes more than spending on mass GGR.”
Morgan Stanley looked on the bright side, seeing “potential for significant upside to MGM and Wynn” as the stock of both companies are now “under-owned relative to historical levels.”
According to the South China Morning Post, analysts in general gave a “thumbs up” to the new resorts in Macau, and even suggested there are signs in the territory’s key industry of “a return to its former glory.”
But if the value of the Chinese yuan falls, so could the fortunes of Macau, said Daiwa chief economist Kevin Lai. He forecast the yuan would see “greater volatility and face the risk of a further 15 percent fall over the next 15 months,” and added, “As Mainland China business accounts for over 90 percent of Macau’s GGR, Macau’s Hong Kong dollar-denominated mass-gaming GGR would see risks in the face of a big downward move in the Chinese yuan.”
According to the Motley Fool, MGM Resorts’ MGM Cotai “could be the big winner” in Macau. The U.S. company decided in August to push back the opening of its new $3.1 billion Cotai resort to the second quarter of 2017. That may give it “a better perspective on what’s working at rival venues, and see the casino operator ultimately holding the winning hand,” the Fool reported.
Melco Crown’s Studio City, on the other hand, is “likely to fail” its first financial tests concerning its borrowings relative to its earnings, according to a study from Fitch Ratings Inc. reported in GGRAsia.
“At current run rate, Studio City is on track to generate US$100 million of EBITDA and burn about US$85 million in cash per year,” said analyst Alex Bumazhny.
In an August filing to the U.S. Securities and Exchange Commission, Melco Crown said there is “no assurance that Studio City’s financial and operational performance will improve sufficiently in the remaining months of the year to meet all of its relevant financial targets.” The Hollywood-themed resort debuted in October 2015, and made headlines by opening without a single VIP room. It plans to add high-roller facilities soon.
Melco Crown noted that Studio City “sits within a separate, ring-fenced credit group and Studio City’s debt obligations are not guaranteed by its shareholders.”
Bumazhny said Melco will probably increase its stake in Studio City, saying the property’s performance “would likely be optimized if it were wholly owned by MPEL due to the greater flexibility in marketing and table allocation.”
