Junkets under pressure in Macau

Junkets under pressure in Macau

Monday, September 12, 2016 Posted by Andy McCarron
Leading VIP operator looks at up to three room closures

Further signs of signs of stress in the VIP end of the Macau market came through in early September after junket operator Iao Kun Group announced the closure of its high-roller room at the Sands Cotai Central Casino.

The company said the move was made due to the downturn in rolling-chip turnover – the basic measure of revenue in Macau – which no longer warrants the operation of five VIP gaming rooms at the casino. As part of the shutdown, Iao Kun is also terminating its agreement with King’s Gaming Promotion. The company said the closure of the one gaming room will generate savings of circa US$750,000.

The move was made as part of a restructuring of Iao Kun Macau business and the company said that a further one or two room could yet also be closed in order for the company to optimise operations.

“Given the lack of recovery in the VIP market in Macau and our expectations that this will continue for the foreseeable future, we are currently reviewing our overall operations in Macau in order to ensure their sustainability," said Lam Man Pou, chairman of Iao Kun. “We expect to take further prudent actions that we believe will be accretive to our earnings per share and to ensure the preservation of our capital as we continue to seek to generate long-term value for our shareholders.”

The degree of the downturn was displayed by a trading update from Iao Kun released a matter of days later which showed the rolling-chip turnover declined by 75% year-on-year in August to US$110m from US$440m at the same time last year. For the first eight months of the year rolling-chip turnover was down to US$2.41bn from US$4.8bn over the same period last year.

Iao Kun operates VIP rooms in both of Galaxy’s properties in Macau and at Melco Crown’s City of Dream.

In its recent first-quarter results statement the company said that in the first three months of this year the company made a net loss of US$3.5m compared to a profit of $17.1m in the same period 2015. The company blamed the loss of the fall in rolling-chip turnover and lower win margins.

In response the downturn in Macau, Iao Kun is looking to diversify. In June it announced it had bought the Jeju Sun Hotel & Casino in South Korea from Golden & Luxury Company, Solaire Korea, and Bloomberry Resorts for US$101m. The Jeju Sun is located on the island of Jeju-Do in South Korea. Iao Kin said the deal was a further step in the transformation of the company towards its strategic goal of becoming a full-service hospitality company. Part of this includes an expansion into providing customers to Australia’s Crown Reports casino properties.

The company has said it is still trialing operations to the Crown Perth Casino and the Crown Melbourne to gain a greater understanding of the preferences of its junket agents and VIP players and the logistics of the market.

Totally Gaming says: The stresses of Macau are well-known by now so it is no surprise to find out that the junkets are suffering. Alongside the restructuring, Iao Kun has ambitious plans to diversify its operations, but as supplier into some Crown Resorts properties in Australia and the hotel and casino acquisition in South Korea. What is certain, though, is that the hoped for recovery in VIP revenues in Macau is clearly in danger of never arriving.

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