Fitch: Okada recovery remains uncertain

The ratings agency says a potential second outbreak of Covid-19 and lack of consumer confidence inform its negative outlook for the firm.

Philippines.- Fitch Ratings has reaffirmed its B rating for Okada Manila’s parent company, Universal Entertainment Corporation’s (UEC) as well as for the company’s notes.

The ratings agency said the outlook for the Philippines casino operator remained negative due to a number of reasons.

On the one hand, its amusement equipment business in Japan is facing a structural decline at a time in which the machine market is likely to remain depressed as casinos struggle to recover profitability.

Fitch said negative outlook for UEC is also “driven by on-going uncertainty over the coronavirus pandemic and its impact on both the IR and the amusement equipment business.”

The agency said: “Despite the re-opening of the IR, we believe there are significant risks to the segment’s recovery in view of travel restrictions, potential new outbreaks and further lockdowns that could weigh on earnings and cash flows. This could be exacerbated by volatility in the amusement equipment segment.”

The ratings firm said “economic uncertainty and a lack of consumer confidence could also lead to a prolonged earnings decline.”

The agency recognised that Okada Manila had reopened and has made significant cost cuts, reducing monthly cash burn, but it expects “performance to continue to be weak at least through 2020.”

Nonetheless, Fitch also believes that UEC holds a strong market position, both in the casino business and in its Japanese amusement equipment business, and has “a moderate debt quantum and adequate liquidity.”

The agency said UEC’s modest size and single-location focus also played in its favour.