Japan’s Universal Entertainment Corp has been assigned a Long-Term Foreign-Currency Issuer Default Rating (IDR) of B+ with a Stable Outlook by Fitch Ratings Japan Limited, with the ratings agency pointing to the company’s strong market position in Manila via Okada Manila but limited casino operations and pachinko headwinds as impacting its rating.
In a Friday release, Fitch said that Universal’s position as a leading IR operator in Manila’s Entertainment City was considered favorably.
“Okada Manila has good potential to establish itself as a leading IR in Entertainment City thanks to its scale and high-end focus,” it stated.
“The ramp-up is well under way and Universal expects to complete the construction in 3Q19. Project risk is limited, even after accounting for potential delays and cost overruns, as most of the investment has been completed.”
Fitch also noted that Okada Manila meant Universal was well-placed to capitalize on economic growth in the Philippines.
However, it noted that the company lacks a track record in the VIP sector upon which it will rely heavily for revenue growth.
“It will not only compete directly with established local competitors such as Solaire and City of Dreams, but also strong and experienced overseas rivals,” Fitch said. “As a result, there is limited earnings and cash flow visibility in these sub-segments and greater risk that actual performance may lag behind Universal’s growth targets.”
Fitch also noted that Universal’s domestic prospects via its pachinko and pachislot business remained volatile.
“Performance in the segment has been affected by regulatory changes that led to a spike in demand ahead of their implementation in 2017. This was followed by a sharp decline in revenue to JPY32 billion and an operating loss of JPY2 billion in January to September 2018, compared with revenue of JPY50 billion and a profit of JPY9 billion in the nine months to December 2017,” it said.
“We expect segmental margins to stay below historical averages in view of the downward pressure on pachinko hall operators’ income as a result of declining player numbers and more stringent regulation. There is also limited visibility over the timing and the extent of this recovery.”
Fitch also assigned Universal’s proposed US senior secured notes an expected instrument rating of ‘B+(EXP)’ subject to receipt of final documentation confirming current information.
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