The Iao Kun Group Holding Company reported a $104.4 million net loss for the second quarter of 2016 on Thursday, a 338 percent year-over-year plunge, in the latest sign that Macau’s VIP gambling business remains on life support.
The VIP room and junket operator also posted a 51 percent decline in rolling chip turnover from the prior year quarter – down from $1.7 billion to just $0.9 billion. The company’s $1.65 net loss per share was also a marked decrease from the $0.38 loss incurred in the second quarter of 2015.
IKGH attributed the sluggish quarter to the incurring of a one-time $97.3 million “impairment of intangible assets,” as well as the general decline of VIP baccarat play in Macau, an economic downturn and ongoing corruption campaign in mainland China – including tighter restrictions on credit card usage.
“As we expect that the VIP market in Macau will continue to be challenging for the foreseeable future, we commenced a strategic review of our operations to reduce expenses and continue to preserve our capital. As a result of the review, we recently closed three of our VIP gaming rooms in Macau,” said Mr. Lam Man Pou, Chairman of IKGH.
Earlier this month, IKGH announced a “strategic restructuring initiative” of its operations in Macau that resulted in the closure of its VIP rooms at Sands Cotai Central, Galaxy Macau and StarWorld VIP rooms.
Within a matter of weeks IKHG had gone from five VIP rooms in the territory to just two – at Le Royal Arc and City of Dreams – as it continues its attempts to diversify across East Asia.
In June, it announced the acquisition of the Jeju Sun Hotel & Casino in South Korea for $101.8 million along with a non-expiring and transferable gaming license. On a conference call with investors, company executives expressed optimism that this transaction would provide a sound alternative as a destination for VIPs from the Chinese mainland, especially as there are no visa requirements, numerous direct flights from major Chinese cities and a low tax rate.
With this transaction, the company effectively signaled that it is close to jumping ship on Macau unless there is a marked turnaround, saying that the VIP business is even worse than indicated by current data.
“While we streamline our operations in Macau, we are looking forward to completing the acquisition of the Jeju Sun Hotel & Casino as well as a non-expiring transferrable gaming license, which will allow us to further diversify our revenue streams while providing a significant opportunity to rapidly grow VIP operations on Jeju Island,” said Pou.
But this wasn’t enough to sooth the concerns of frustrated shareholders.
“Why should I have confidence as a shareholder in light of some of the past disappointments that the management team is going to be able to get this done?” noted one skeptical investor on the call.
Preliminary indications for the third quarter suggest a Macau rebound won’t happen anytime soon. For August, the company reported a 75 percent plunge in rolling chip turnover, from $0.44 billion in 2015 to $0.11 billion – and a 44 percent drop for July.
Total VIP rolling chip turnover, the key metric for assessing overall VIP business, in Macau for the first eight months of 2016 was $2.41 billion, a 50 percent year-over-year decline. With the closure of three of VIP rooms, the company has revised its projected 2016 total down to the $2.5 billion to $3.0 billion range, suggesting that it can break even on a cash flow basis at this amount.
On September 13, IKGH received notice from the NASDAQ exchange that its stock was not in compliance with a rule stipulating that listed securities maintain of minimum bid price of $1.00. The company was given 180 days to produce a closing bid price of at least $1.00 for 10 consecutive days for the matter to be resolved.
If the low bid price persists, the company may be eligible for a second 180 days if it enacts a reverse stock split.
“Everybody in this boat is unhappy right now” grumbled another shareholder.
