S&P Global changes Universal Entertainment outlook from stable to negative
The rating agency has affirmed Universal Entertainment’s long-term issuer and senior debt ratings.
The Philippines.- S&P Global Ratings has changed its outlook on Universal Entertainment (UE) from stable to negative. It also affirmed its B long-term issuer credit rating and B long-term senior debt rating. The level is considered non-investment grade, or speculative.
Analysts said: “The outlook revision reflects our view that UE’s performance in both its domestic gaming machine and the Philippines’ casino resort businesses has fallen far short of our previous expectations. This raises the possibility that its financial condition will continue to deteriorate over the next year or so.”
According to S&P Global Ratings, there are risks associated with weak compliance regarding new pachinko machine models. It anticipates that UE will introduce new models and secure orders, contributing to a gradual recovery through the second half of fiscal 2025, but EBITDA for the segment is forecast at JPY11bn (US$76.04m). Analysts said that if new models fail to pass compliance tests, the business may not recover as expected.
S&P Global said the company’s casino resort Okada Manila, under subsidiary Tiger Resort, Leisure and Entertainment Inc, is likely to see only a modest improvement in earnings. Analysts said: “The number of international tourists visiting the Philippines is increasing only slowly and increased competition in the country’s casino resort market has worsened the business environment for Universal Entertainment, in our opinion.”
The company is taking steps to enhance non-gaming activities and reduce costs. Analysts expect EBITDA to be approximately JPY24bn (US$165.9m). vConsolidated EBITDA for UE is projected to rebound from JPY21.2bn (US$146.55m) in fiscal year 2024 to around JPY29bn (US$200.46m) in the current fiscal year – about 70 per cent of the EBITDA recorded in 2023.
“There is a certain possibility that earnings may fall short of expectations and the outlook for recovery may be pushed back. We believe the risk of the company breaching financial covenants, such as a lower limit of interest coverage, is low at this point. However, we still believe that a slow turnaround could limit its capacity,” the agency said.
For the first quarter of the year, Universal Entertainment Corp recorded net sales of JPY27.2bn (US$184.9m). That’s a decline of 21 per cent when compared to last year.
Okada Manila posted net sales of JPY18.3bn (US$124.4m), down 9.8 per cent year on year, and an operating profit of JPY331m (US$2.25m), down 81.3 per cent. Gross gaming revenue (GGR) from the gaming machine category declined due to the decrease in the number of visitors.
The amusement equipment business sold 18,623 units, a decrease of 9,391. Net sales decreased by 36.9 per cent to JPY8.7bn (US$59.14m). The company posted an operating loss of JPY1.1bn (US$7.48m), compared to an operating profit of JPY3.9bn (US$26.51m) in the first quarter of 2024. The company said pachislot sales were strong due to the diffusion of smart pachislot machines. However, there was an operating loss caused by the decrease in sales volume.
