Philippine revenue still rising, despite recent hiccups, analysts say


The Philippines, tipped at the beginning of the year to be the region’s best-performing gambling market, is still likely to outperform its peers despite heavy second-quarter losses among operators, slumping stocks and ongoing project delays, analysts say.

Manila’s Entertainment City gaming hub had been expected to be a key beneficiary from the VIP exodus from Macau, propelled by the opening of Melco Crown Entertainment’s City of Dreams, Manila.

However, losses across the industry mounted in Q2, with JP Morgan predicting in a June report that profit across the sector would be down 56 percent this year. Philippine gaming stocks in the year to June were the world’s worst-performing, while COD announced the suspension of 100 workers.

Despite the recent string of negative news, analysts remain upbeat. They say underlying revenue growth remains strong and maintain that the market will still outperform others in the region.

Part of the reason for the optimism is the more diverse gambling base, which includes locals and a strong Philippine economy, with Gross Domestic Product Growth rising to 5.6 percent in 2Q from 5 percent  in 1Q15, despite external weakness.

 “The VIP gamblers in the Philippines are quite diversified. Yes, some of them are some from China, but the majority are split among the locals, South Koreans, and those from Southeast Asia such as Singapore and Malaysia,” an analyst who tracks the country’s gaming industry told AGB.

There are concerns the Chinese crackdown on corruption will hamper collection of receivables from Chinese gamblers, but so far the issue is still well managed by the operators, he said.

Tourist arrivals in the Philippines increased 8.2 percent to 2.23 million in the first five months of the year, with South Korea making up 24.5 percent of the total, followed by the U.S. and Japan, according to government data. China came in fourth with a 7.1 percent share.

The Philippines’ gaming revenue is projected to hit between $2.8 billion and $3 billion this year, up at least 20 percent from 2014, as more foreign gamblers visit the country, regulator Philippine Amusement Gaming Corp (Pagcor) has said.

“The strong momentum this year comes from new market entrant — City of Dreams Manila,” the analyst said, forecasting revenue of the top three operators to grow to 79.3 billion pesos ($1.7 billion) in 2015, from 2014’s 58.9 billion pesos.  

The $1.3 billion COD Manila, which opened in February, is a joint venture between the Philippines’ richest man Henry Sy, Australian billionaire James Packer and Lawrence Ho, son of Macau casino mogul Stanley Ho. It marks Melco Crown’s first bet outside the world’s biggest gaming hub Macau. The Manila franchise boasts a DreamWorks theme park, two night clubs and six hotel towers.

The net loss of COD Manila widened to 1.82 billion pesos in the second quarter.

The casino is temporarily trimming about 100 staff. The suspended workers account for about two percent of the integrated resort’s workforce, and are mainly in gaming-related sectors, reports said.

“COD Manila is expected to go into the red this year as it ramps up operations. Its VIP business only began in May, and there is only so much it could do in the first year,” the analyst said.

DBP-Daiwa, however, said in a note that COD Manila has been moving aggressively in the second quarter to control costs. “Expenses declined by 7 percent quarter-on-quarter due to much lower advertising and marketing costs, which comprised around 3 percent of total expenses versus 19 percent of total expenses in the first quarter of 2015,” it said.

COD Manila wasn’t the only one in the red. Manila-listed Bloomberry Resorts, operator of the Solaire casino, reported an after-tax net loss of 786.6 million pesos in the April-to-June period, on six-billion-pesos in revenue.

The company attributed the loss to increased costs for the opening of a new wing for the Manila property, as well as investments in a casino in South Korea — Bloomberry’s first overseas foray.

CEO Enrique Razon remains upbeat and says the investments would pay off. “Well into our second year, Solaire continues to experience steady and continuous growth especially in all gaming segments,” he said in a statement, which disclosed gaming accounts for nearly 95 percent of revenues.

“That this is happening despite new competition gives credence to our conviction that the Philippines is a prime market for gaming for both local and foreign players. We’re on the right track.”

Solaire was the first of four planned billion-dollar casinos at a seafront enclave in Manila aimed at turning the Philippines into a gaming hub alongside Macau and Las Vegas.

According to forecasts from COL Financial, Bloomberry will post a smaller income of 1.7 billion pesos this year, from last year’s 4 billion pesos.

Travellers International Hotel Group, operator of Resorts World Manila, reported a 46 percent year-on-year decline in net profit at 622.3 million pesos for the three months ending June.

“RWM’s second-quarter VIP volume grew 16.8 percent quarter-on-quarter. This is better than that of Macau and Singapore, which were down both annually and sequentially. With the same strong second-quarter VIP growth at Bloomberry, it suggests VIP volume in the Philippines is locally driven and not heavily dependent on foreign visitors,” said a second analyst.

One likely reason for RWM’s sub-par performance in the second quarter could be the construction of NAIA expressway in front of its integrated resort that has caused a traffic deadlock. This would also explain why the grind market was similarly down for RWM, the analyst added.

Meanwhile, the casino project of Japan’s Universal Entertainment, which has been best by regulatory problems and delays, may now be back on track. Pagcor has granted an extension to end 2016 in return for increased investment in the project, which may now cost as much as $4 billion.

In May, Pagcor confiscated a $2.2 million guarantee payment from Universal’s local unit, Tiger Resorts Leisure and Entertainment, over project delays.

Pagcor is unfazed with the industry’s sluggish performance, attributing the companies’ losses to expansion expenses. It said gaming revenue is still growing.

When Tiger’s project and the $1.1 billion first phase of Resorts World Bayshore, co-developed by Alliance Global Group and Genting Hong Kong, operate in full swing in 2018, Pagcor said total gaming revenue will hit $6 billion. That would be about three times 2014’s $2.2 billion revenue.