Melco Crown Entertainment reported a 20% drop in net income in the second quarter on a 7.4% fall-off in revenue which the company attributed mainly to the weakness in the VIP sector currently plaguing Macau.
The US$143.6 million in profit came off $1.19 billion in revenue, which missed Wall Street’s target of $1.29 billion, and it cost the stock (Nasdaq: MPEL) as much as 5% in early trading before it recovered to a 2.9% drop.
“The decline in net revenue was primarily attributable to lower group-wide rolling chip revenues, partially offset by improved mass market table games revenues,” the company said.
Mass tables were up 35% in the quarter, beating the market’s +32% and in line with a broad industry shift of resources toward more profitable cash play and away from VIP, which appears to be reeling from an acceleration of the anti-corruption campaign on the Chinese mainland.
But EBITDA was still down 11% to $314 million (minus-19% QoQ), mostly due to higher commission costs and promotional allowances and a $10 million spike over the first quarter in staff costs. EBITDA was down 3% at the company’s flagship City of Dreams on Cotai and down 62% at Altira in downtown Taipa. The end result in terms of corporate earnings per share was a year-on-year decline of 26% to 26 cents, 10 cents below a consensus of 21 analysts polled by Thomson Reuters.
On the plus side, Melco announced it is buying back $500 million worth of shares.
But analysts seem more concerned at this point with the bigger picture: the swoon in Macau VIP, the risk to profit margins from the current labor unrest, and July’s market-wide slowdown in mass growth to +17% year on year versus June’s 27% rise. Wells Fargo’s Cameron McKnight said it was “the lowest result since we started tracking data in 2010,” and Alison Law, head of consumer research at Daiwa Securities, called it “disappointing”.
“Investors didn’t expect the monthly mass-market growth to be the slowest in years,” she said.
Combined with July’s 3.6% drop in gaming revenue market-wide, the recent soft quarterly reports from Sands China, Wynn Macau and MGM China Holdings, and the news that Melco’s Taiwan office is in hot water with prosecutors for alleged violations of the country’s banking and foreign exchange legislation, and the effect was to hammer the territory’s Hong Kong-listed casino stocks.
Wynn Macau (1128.HK) fell to almost a three-year low before ending yesterday down 7.6% at $29.35. Galaxy Entertainment (0027.HK) dropped 6.4% to $59.40, its biggest fall in three months. Sands China (1928.HK) lost 5.8% to settle at $52.35.
