GGRAsia – MGM China profits down 44 pct in 1H 2015

MGM China profits down 44 pct in 1H 2015

Aug 05, 2015 Newsdesk Latest News, Macau, Top of the deck

Macau casino operator MGM China Holdings Ltd saw profits fall 44 percent in the six months to June 30, to HKD1.70 billion (US$219.2 million), compared to approximately HKD3.04 billion in the year-prior period.

The firm – which is 51 percent owned by U.S. casino operator MGM Resorts International and currently operates a single property on Macau peninsula called MGM Macau (pictured) – said in its earnings statement on Tuesday that the fall was due to “lower gaming revenue and increase in payment for payables and accrued charges during the current period”.

A number of investment analysts noted that MGM China’s margin on earnings before interest, taxation, depreciation and amortisation (EBITDA) improved slightly during the second quarter.

But they also noted that provision for bad debt had risen steeply during the first six months of 2015.

“First half 2015 bad debt provision jumped 342 percent half-on-half (+244 percent year-on-year): to US$25 million or 6.0 percent of property EBITDA (versus first half 2014, 1.6 percent and second half 2014, 1.1 percent),” wrote Karen Tang of Deutsche Bank AG in Hong Kong in a note on Tuesday.

“Management noted the jump is because more casino debtors have defaulted and/or have seen decline in creditworthiness with the downturn of the Macau gaming market,” she added.

Staff costs at MGM China increased by 3.6 percent to just over HKD1.00 billion “primarily due to a 5 percent staff salary increment to line level staff implemented in March 2015 which was partly offset by a slight decrease in the number of full-time equivalent [staff] over the comparable periods in 2014 and 2015,” said the firm.

The casino company said it was due to “top out” a tower at its under-construction HKD24-billion MGM Cotai resort in Macau, in “early November”.

“The group remains on schedule for the planned opening of MGM Cotai in the fourth quarter of 2016,” it added. The quoted budget excludes land costs and capitalised interest.

“Construction of MGM Cotai (with 1,500 hotel rooms and space for 500 gaming tables) continues to progress well,” noted analysts Richard Huang and Stella Xing of Japanese brokerage Nomura in a note on Wednesday.

The MGM China board declared an interim dividend of HKD0.156 per share, amounting to approximately HKD592.8 million in aggregate, and representing approximately 35 percent of the group’s profit attributable to owners of the company for the six months ended June 30.

Gaming operations

Gaming performance indicators from MGM China during the reporting period were nonetheless down.

Total operating revenue of just over HKD9.20 billion for the first half was 32.9 percent lower than the prior period.

Casino revenue decreased by 33.4 percent to approximately HKD9.04 billion for the first half.

Revenue from VIP gaming operations decreased by 44.1 percent to approximately HKD4.24 billion for the first half.

The firm said decrease in revenue was due to a decrease in VIP table games turnover by 52.4 percent to approximately HKD200.01 billion, “adversely impacted by political and macroeconomic factors in China, which is a major source of our VIP gaming customers”, but partially offset by an increase in VIP table games win percentage from 2.9 percent to 3.3 percent over comparable periods in 2014 and 2015.

For the six months, MGM Macau had 181 VIP gaming tables in operation, compared with 229 VIP gaming tables for the six months ended June 30, 2014.

“We continued to reduce the number of VIP gaming tables to reallocate to the main floor gaming operation to optimise profit,” said MGM China.

Revenue from main floor gaming operations decreased by 18.6 percent to HKD3.96 billion, “directly attributable to the changed business conditions in the Macau gaming market such as the transit visa restriction and main floor smoking restriction introduced by the Macau government both of which became effective from the second half of 2014,” said MGM China, although it noted that its single-property operation had outperformed the overall market in mass table games, where revenue fell 21.5 percent during the period.

MGM China’s revenue from slot machine gaming operations decreased by 26.0 percent to HKD835.9 million for the six months ended June 30.

Other revenue – including from hotel rooms, food and beverage and retail – increased by 13.6 percent to HKD167.0 million for the six months ended June 30, primarily due to an increase in hotel room revenue.

MGM China’s parent MGM Resorts International, reported net revenue at the company’s wholly owned domestic resorts in the U.S. up 4 percent year-on-year in the second quarter, at US$1.7 billion.