Bloomberry Resorts Corporation: Underperforms with 1Q15 core net loss of Php506Mil

Underperforms with 1Q15 core net loss of Php506Mil. BLOOM reported a net loss of Php533Mil for the first quarter of the year. Stripping out foreign exchange and mark-to-market losses, core net loss for the period amounted to Php506Mil. Results disappointed on slower-than-expected revenue growth as well as faster-than-expected growth of operating expenses attributable to the opening of Sky Tower. Total revenues only saw an 8.8% improvement y/y while operating expenses ballooned by over 27%. 

Net gaming revenues improve 8.4%, misses estimates. BLOOM raked in Php8.1Bil in gross gaming revenues in 1Q15, translating to an improvement of 14.6% y/y. Deducting promotional allowances, net gaming revenues were at Php6Bil, growing by 8.4% from 1Q14’s Php5.5Bil. Net gaming revenues fell short of expectations, accounting for only 21.2% of COL forecasts. Management said that gaming revenue mix was maintained at 50% VIP, 50% mass. We were expecting the mix to be skewed more towards VIP at 52% and 48% for mass. This implies that BLOOM’s VIP gaming revenues underperformed. 

Operating expenses balloon by over 27%. Following the opening of Sky Tower last November 2014, BLOOM’s operating costs expenses grew by 27.4% in 1Q15 to Php5.8Bil from Php4.5Bil. Operating expenses expanded more than expected, as these costs represented 26.6% of our forecast. As a result, EBITDA margins sunk to 27.3% in 1Q15 from 34.1% during the same period last year.

The Sky Tower doubled BLOOM’s size, adding restaurants, gaming and non-gaming facilities as well as increasing the total hotel room count by 64% to 800 rooms. According to management, it expects the Sky Tower to generate profits soon. 

Keeping an eye on receivables risk. In February this year, the Chinese government declared a crackdown on foreign casinos, leading to concerns not only over BLOOM’s revenues but its receivables from junket operators. As of March 2015, receivables from junket operators were at Php2.5Bil, lower than the Php3.1Bil as of end 2014. This implies that BLOOM is still able to collect from its junket operators. Nevertheless, we will continue to monitor the company’s receivables, as 61.2% of total gross receivables are already past 90 days due. 

Estimates to be reviewed. We will be reviewing our estimates in light of significantly lower-thanexpected revenues and faster-than-expected growth of expenses in 1Q15. We currently have a FV estimate of Php16.30/sh and a BUY rating on BLOOM. 

- COLfinancial