Melco's Ho Says Macau Has Seen Its Worst as Studio City Ramps Upby
Casino operator posts 22% profit drop amid Macau gaming slump
Mass market should see 'reasonable growth': Lawrence Ho
Melco Crown Entertainment Ltd. is betting that Macau’s gambling slump has hit bottom and the company is preparing to ramp up operations at the $3.2 billion Studio City resort that opened last week in the world’s largest gambling hub.
“We’ve seen the worst in Macau -- it’s really a matter of when the real recovery starts,” billionaire chairman Lawrence Ho said in a briefing Thursday after Melco announced third-quarter results. While the VIP gambling segment will be challenging next year, the mass market has stabilized “and should see some reasonable growth hopefully,” he said.
Hong Kong-based Melco’s adjusted property earnings before interest, taxes, depreciation and amortization fell 22 percent to $237.3 million, Melco said in a statement. That compares with the $233 million median estimate of five analysts surveyed by Bloomberg. Revenue declined 16 percent to $945.7 million.
China’s slowing economy and its crackdown on corruption is causing Macau’s casino industry its worst downturn on record, with gross gaming revenue falling for the 17th straight month in October. To reduce its reliance on gambling, Melco Crown opened the Hollywood-themed Studio City on Oct. 27, touting non-gaming features such as a Batman ride and a Ferris Wheel in the shape of a figure-8.
Melco shares fell 1.9 percent to close at $19.01 in New York trading. The shares have slumped about 25 percent this year.
Since the opening, Studio City’s non-gaming facilities have performed well, and occupancy at the resort’s 1,600 hotel rooms was over 90 percent, Melco Chief Operating Officer Ying Tat Chan said Thursday. The resort’s hotel is more than 85 percent booked for this month, and 70 percent booked for December, he added.
While major new properties opening in Macau’s Cotai Strip tend to take at least one and a half years to raise the level of their operations, “I’m sure we can ramp it quicker due to numerous initiatives,” Chan said, including transferring Melco’s experienced employees from its other existing operations to work at Studio City.
Studio City is “the leading edge of a driver of an inflection point that should lead to recovery in the Macau gaming market,” Sanford C. Bernstein analysts led by Vitaly Umansky wrote in a Thursday note after the results.
China’s President Xi Jinping in December ordered the city to diversify its economy from gambling, on which it relies for about 80 percent of revenue. In response to criticisms made by Las Vegas tycoon Steve Wynn about its policies, Macau’s government said last month it 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 the mass segment in response, building shops and tourist attractions. Studio City includes 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.