Rising finance costs hit SunCity bottom line in 2019

9 June 2020

Macau casino junket operator the SunCity Group saw revenue for 2019 decline to RMB611.8m (£68.0m/€76.4m/$86.4m), while losses increased to RMB1.50bn due to another year of rising financial costs.

The business - which arranges the travel and accomodation of high-roller customers - made RMB572.3m in revenue through contracts with customers, down 23.5%.

This was made up primarily of sales of travel-related products (mostly hotel accommodation), which brought in RMB519.7m, down 2.9%. The biggest reason for the year-on-year decline was reduced revenue from sales of properties, which came to just RMB18.9m, down 89.3%.

Also included in revenue from contracts with customers was property management services revenue, which grew 76.5%, and hotel and integrated resort consultancy revenue, which fell 27.0% to RMB14.5m.
SunCity made a further RMB39.6m through leases, down 12.2% for overall revenue of RMB611.8m, down 22.8%.

The vast majority of SunCity’s revenue, at RMB497.4m, down 2.9%, came from Macau. A further RMB24.5m came from mainland China, down 86.7%. Revenue from Vietnam fell 23.1% to RMB38.1m, with the Philippines, Cambodia and Turkey making up the remainder of revenue.

Costs of sales came to RMB511.9m, down 7.9%. Cost of sales for travel products came to RMB487.8m, down 2.2%, while the cost of properties sold was RMB14.1m, down 71.8%, and the cost of services rendered increased 42.6% to RMB10.0m.

This resulted in a gross profit of RMB99.9m, down 57.8%.

Suncity’s administrative expenses came to RMB159.9m, up 54.5%. These included staff costs of 74.8m, up 39.6%.

The operator’s selling and distribution expenses grew 8.6% to RMB7.0m while its other operating expenses fell 20.9% to RMB3.6m.

The operator incurred a further RMB82.3m in other losses, largely comprising foreign exchange losses, down 62.0%. Changes in the fair value of the business’s investment properties resulted in a RMB112.8m charge, more than ten times that recorded in 2018, but the change in the fair value of financial assets resulted in a RMB20.7m profit, a more than 20-fold increase.

Suncity lost an additional RMB212.4m due to issuance of new shares diluting the value of its investment in property management and transportation services business SunTrust and of Summit Ascent Holdings, which develops casino resorts in the Russian Far East.

SunCity incurred a further RMB197.7m impairment cost on interest related to Summit Ascent.

The change in fair value of financial derivatives resulted in a further charge of RMB521.7m. However, was a significant decline on 2018's fair value changes.

The business set aside a further RMB27.8m as a provision for litigation.

SunCity made a further RMB5.6m from its share of profits of businesses in which it does not hold a controlling stake, compared to a RMB1.0m loss in 2018. However, it posted a RMB82.2m loss, up 451.4% from 2018, through its joint venture with Vietnam-based asset management firm VinaCapital Group, Gold Yield Enterprises.

The operator paid a further RMB222.5m through financial costs, up 37.9%. Of this total, the largest cost was interest on loans from related businesses, which increased more than 11-fold to RMB81.3m. Also included in financial costs was interest on convertible bonds, which declined 42.4% to RMB54.1m. The remainder of these financial costs consisted of interest on bank loans, which fell 10.2% to RMB22.2m, and other forms of interest.

These costs meant the business faced a pre-tax loss for 2019 of RMB1.50bn, up 8.5% from 2018’s loss.

After paying RMB14.2m in taxes, down 82.4%, SunCity’s net loss came to RMB1.51bn, 3.4% higher than 2018.

After accounting for exchange differences, SunCity’s loss was reduced to RMB1.46bn, just 0.7% more than 2018’s loss.

Like the rest of the land-based casino and hospitality industry, SunCity acknowledged that Covid-19 had had a “negative impact” on its business in 2020. The business said the financial impact of Covid-19 “cannot be reasonably estimated” so far.

In the first five months of 2020, gambling revenue from Macau has declined 73.7% year-on-year to MOP33.00bn because of the impact of the pandemic. Of that total, more than two-thirds came in January, before the island locked down, while revenue for both April and May was down more than 90%.

The results were substantially delayed, as the outbreak meant the statements were not audited by Suncity’s auditor, Deloitte until now. The operator’s unaudited results were published in March.