Not the greatest of quarters but positive outlook on gaining casino approvals for Studio City was a main takeaway from the call.
"In addition to the recent slow-down in the market-wide rolling chip segment, our rolling chip volumes also continue to be impacted by our table optimization strategies, which we are optimistic will generate improved future group-wide table yields across our rolling chip and mass market table games segments, giving us greater flexibility to participate in the changing gaming landscape in Macau and drive long term and sustainable improvements in future operating fundamentals."
- Mr. Lawrence Ho, Co-Chairman and Chief Executive Officer of Melco Crown Entertainment
CONF CALL NOTES
- Continue to shift tables from Altira to CoD and shifting tables between Mass and VIP
- Altira's table use has stabilized and reached competitive levels
- Introduced a limited run caberet show at CoD
- Mgmt likes the high end of the mass market which they believe will provide them with a more stable and loyal customer base
- Excited about Macau's improving infrastructure which should provide better access to the region
- MSC: 1,650 rooms targeting the mass market. Capacity for 400-500 gaming tables. Feel that the location will given them a competitive advantage - near the Lotus Bridge and along one of the rail stops.
- Assuming hold would have been 2.85% - their EBITDA would have been unchanged. Despite a slightly higher blended win rate of 2.88%, they were negatively impacted by unfavorable mix between their RC and Revshare programs.
- 3Q12 guidance:
- $90-95MM of D&A
- $18-20MM of corporate expense
- $23-25MM of net interest expense
Q&A
- MSC land grant: mentions the 5-star resort and hotel. This isn't a direct grant from the government to a concessionaire and it's not wholly-owned by a concessionaire. The DICJ is the one that grants them gaming tables not the Department of Transportation which grants the land and construction grant. The site was already approved for a casino management license so they think that the process of getting a casino license for them is the same as for WYNN or any other site.
- Higher range of mass hold at CoD (25-30%) going forward
- They are short of rooms at CoD and Tower 5 has always been at their plans. They are at 90%+ occupancy every day. They have completed the design work for Tower 5 and plan on building once the land gets re-gazetted. Hope to start construction of the tower as early as next year.
- Can't really comment on the Philippine project but basically they will have a 50% ownership stake
- MSC financing: still in discussions with their bank group. Expect that since it will be a project loan it will have a higher spread than their corporate facility at +175bps. Expect that they will have financing in place by year end.
- Philippine partner database has 5MM customers and they will use that database. They will try to use their own database to create synergies as well.
- Continue to lobby in Taiwan and Japan. They are keenly interested in developing in these markets.
- Condition of the premium Mass market? Grew more than 50% in 1Q so that gave them a high base and difficult comp. So they were pleased to maintain that level of business in 2Q (despite the sequential supply). They did experience some movement of their mid-lower tier customer movement to SCC but recently have seen that customer returning and have had a rebound in July.
- See more promotional activity in Macau. The mid-lower tier of the market is more sensitive to these promotions.
- They are not surprised that the VIP market has slowed down. At the beginning of the year, they were expecting 15% growth in the market. This year is really a transitional year for the Chinese government and the Chinese economy should rebound in 2013. That's why they have really spent time on improving their VIP product (since things are slower). They are still building for the future.
- Earlier this year, they decided to allocate more of the Altira VIP tables to CoD. On the cost side, they maintain a very lean operating team at Altira. Going forward, it's more about improving the productivity of their tables there rather than cutting operating costs.
- Think that the productivity of Altira is quite close to CoD at this point. No comment on shutting down in the future to use that table capacity at MSC.
- The table shift is mainly done - there may be some more "moderate" changes. They are very happy with the last 2 months performance at Altira. Expect improvement in EBITDA at Altira. Sounds like they had an unfavorable mix of business at Altira.
- At June 30th: VIP:354; Mass: 271 tables.
- Increase in promotional allowance? They have taken a more aggressive approach to comping room or expanding their casino block. They think having more gaming customers in the rooms is a net positive for business.
- Minority interest represents the 40% interest of MSC that they don't own. There is $10MM of expense related to MSC which are both above and below the EBITDA line.
HIGHLIGHTS FROM THE RELEASE
- Net revenue of $939MM and Adjusted EBITDA of $204MM
- CoD: net revenue of $684MM and adjusted EBITDA of $184MM.
- YoY EBITDA growth due to: "improved mass market table games and gaming machine volumes, a substantially improved mass market table games hold percentage as well as a higher rolling chip win rate, partially offset by higher wage costs as a result of the wage rate increase in April 2012."
- Altira: net revenue of $209MM and adjusted EBITDA of $26MM
- "The decrease in Adjusted EBITDA was primarily attributable to a lower rolling chip win rate together with reduced rolling chip volumes, as well as higher wage costs associated with the wage increase in April 2012"
- Mocha slots: net revenue of $35MM and adjusted EBITDA of $9MM
- Average slots: 2,100; average win per device: $181
- "The decline in net revenue was primarily attributable to lower group-wide rolling chip volumes, partially offset by strong improvements in the mass market table games and gaming machine segments, particularly at City of Dreams."
- YoY NI improvement "primarily a result of improvements within the mass market gaming segments, reduced non-operating expenses, including lower net interest costs and one-off costs associated with the refinancing of the City of Dreams Project Facility, partially offset by the amortization of land use rights at Studio City, the impact of increased wage costs as a result of the wage rate increase in April 2012 as well as lower group-wide rolling chip volumes and win rate."
- "In relation to Studio City, we are delighted to have received from the Macau Government the revised formal land grant approval and permit to restart construction, enabling us to move forward with the development of our exciting Studio City Project – a large-scale integrated entertainment, retail and gaming resort which will include significant gaming capacity, five-star hotel offerings and various entertainment, retail and food and beverage outlets to attract a diverse range of customers, with a particular focus on the mass market segment in Asia and, in particular, from Greater China."
- "We have also recently entered into a memorandum of agreement for the development and operation of an integrated casino resort in the Philippines, which will further diversify our exposure in Asia and deliver incremental sources of earnings and cashflow. We will provide further details on this project when we finalize the terms and conditions of the definitive agreements."
- Capitalized interest: $2.4MM
- Cash & equivalents: $1.8BN; total debt: $2.4BN
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Capex: $51.9MM (primarily related to projects at CoD and preliminary MSC costs)